<PAGE>


                                    FORM 10K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended                                 Commission File Number
December 31, 2003                                                        0-16728

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)


         Delaware                                                52-1638296
         --------                                                ----------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

          P.O. Box 9507, 7 Bulfinch Place - Suite 500, Boston, MA 02114
         --------------------------------------------------------------
                    (Address of principal executive offices)


                                 (617) 570-4600
                        --------------------------------
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                      UNITS OF LIMITED PARTNERSHIP INTEREST

         Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.

                 Yes [X]                            No [ ]

            Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined by Exchange Act Rule 12b-2).

                 Yes [ ]                            No [X]


         There is no public market for the Limited Registrant Units.
Accordingly, information with respect to the aggregate market value of Limited
Registrant Units held by non-affiliates of Registrant has not been supplied.

                       Documents incorporated by reference
                       -----------------------------------
                                      None


<PAGE>


                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
                    CROSS REFERENCE SHEET PURSUANT TO ITEM G,
                        GENERAL INSTRUCTIONS TO FORM 10-K



<TABLE>
<CAPTION>
ITEM OF FORM 10-K                                                                   Page

                                     PART I
<S>     <C>                                                                         <C>
   1.   Business                                                                     3
   2.   Properties                                                                   7
   3.   Legal Proceedings                                                           13
   4.   Submission of Matters to a Vote of Security Holders                         13

                                     PART II

   5.   Market for Corporation's Common Equity and Related Stockholder Matters      14
   6.   Selected Financial Data                                                     15
   7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                     16
   7A.  Quantitative and Qualitative Disclosures Regarding Market Risk              23
   8.   Financial Statements                                                        24
   8A.  Controls and Procedures                                                     48
   9    Changes in and Disagreements with Accounts on
           Accounting and Financial Disclosure                                      49

                                    PART III

   10.  Directors and Executive Officers of the Corporation                         50
   11.  Executive Compensation                                                      51
   12.  Security Ownership of Certain Beneficial Owners and Management              51
   13.  Certain Relationships and Related Transactions                              51
   14.  Principal Accountant Fees and Services                                      52

                                     PART IV

   15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K            53
        (a) Financial Statements and Financial Statement Schedules
        (b) Exhibits
        (c) Reports on Form 8-K

        Signatures                                                                  54

        Exhibit Index                                                               55

</TABLE>



                                       2
<PAGE>
                                    PART I


         Certain matters discussed herein are forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should,"
"estimates," or "anticipates," or the negative thereof or other variations
thereof or comparable terminology. All forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
transactions, results, performance or achievements to be materially different
from any future transactions, results, performance or achievements expressed or
implied by such forward- looking statements. Although we believe the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained or that any deviations will not be material. We disclaim any
obligations or undertaking to publicly release any updates or revisions to any
forward-looking statement contained in this annual report on Form 10-K to
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

ITEM 1. BUSINESS

General

         Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed on August 23, 1989 to acquire, own and
operate 50 Fairfield Inn by Marriott properties (the "Inns"), which compete in
the economy segment of the lodging industry. Effective August 16, 2001,
AP-Fairfield GP LLC, a Delaware limited liability company, became the general
partner of the Partnership. See "Restructuring Plan" below. During the year
ended December 31, 2002, the Partnership sold four of its Inns, two of which
leased their underlying land from Marriott International, Inc. ("MII"), and
retains an interest in 46 Inns as of December 31, 2003, all of which are being
marketed for sale. See "Property Sales."

         As of December 31, 2003, the Partnership leases the land underlying 30
of its Inns from MII and certain of its affiliates. The Partnership's 46 Inns
are located in sixteen states. See "Item 2. Properties" below. Effective
November 30, 2001, Sage Management Resources III, LLC ("Sage" or "Manager"), an
affiliate of Sage Hospitality Resources, LLC, began providing management at the
Inns. See "Restructuring Plan" below. Prior to such date, the Inns were managed
by Fairfield FMC Corporation, a wholly owned subsidiary of MII, as part of the
Fairfield Inn by Marriott system under a long-term management agreement. Under
Sage the Inns continue to be operated under the Fairfield Inn by Marriott
system. Sage is a leading hotel management company that, including the
Partnership's properties, owns, manages and/or operates 79 hotels located in 24
states. Of these hotels, 68 carry a Marriott flag including 56 Fairfield Inns.

         Between November 17, 1989 and July 31, 1990, the Partnership sold
83,337 units of limited partnership interests in a registered public offering
for $1,000 per unit. The original general partner, Marriott FIBM One
Corporation, contributed $0.8 million for a 1% general partner interest and $1.1
million to assist in establishing our initial working capital reserve at $1.5
million, as required in the partnership agreement. In addition, the general
partner purchased units equal to a 10% limited partner interest at the closing
of the offering. The remaining 90% limited partnership interest was acquired by
unrelated parties.

Restructuring Plan and Plan of Liquidation

Restructuring Plan

         As a result of the Partnership's continued decline in operating
results, the prior general partner, FIBM One LLC, developed a restructuring plan
for the Partnership. In connection with this plan, the consent of limited
partners of the Partnership was sought for the transfer by FIBM One LLC of its
general partner interest in the Partnership to the current general partner.
Effective August 16, 2001, following the receipt of the necessary consent to the
transfer of the general partner interest, FIBM One LLC transferred its general
partner interest in the Partnership to AP-Fairfield GP LLC, which is affiliated
with Apollo Real Estate Advisors, L.P. and Winthrop Financial Associates, a
Boston based real estate

                                       3
<PAGE>

investment company with extensive experience in partnership, asset and property
management as well as investor servicing.

         On November 30, 2001, the Restructuring Plan was implemented as the
Partnership (i) replaced MII as the property manager at the Partnership's
properties with Sage Management, (ii) entered into new Franchise Agreements with
MII, (iii) entered into Ground Lease modifications which provided for
substantially reduced rent for the year 2002, and an extension of the term to
November 30, 2098, (iv) agreed to complete the property improvement plans
("PIPs") required by MII at the properties by no later than November 30, 2003
and (v) MII waived its right to receive the deferred fees then owing to it.

         Also, as part of the Restructuring Plan, the Partnership filed a Form
S-1 Registration Statement, in which the Partnership sought to offer its limited
partners the right to purchase $23 million in subordinated notes due in 2007
(the "Offering"). The proceeds of the Offering were to have been used for
capital improvements at the Inns. However, due to the Partnership's ongoing
financial difficulties, and in light of the continued decline in operations, it
was determined not to make the Offering and the Registration Statement was
withdrawn on January 6, 2003.

         Pursuant to the terms of the management agreement with Sage, which
agreement has a term of five years subject to early termination, the Partnership
is required to pay Sage a management fee equal to 3% of adjusted gross revenues
at the Partnership's properties. In addition, Sage is entitled to an annual
incentive management fee equal to 10% of the excess earnings before interest,
taxes, depreciation and amortization of the Partnership in excess of $25 million
during the first three years. If the Partnership's earnings before interest,
taxes, depreciation and amortization is not at least $25 million for the 2004
calendar year (subject to certain exceptions), the Partnership has the right to
terminate Sage. See "The Fairfield Inn by Marriott System" below.

         The new Franchise Agreements were substantially similar to the prior
agreements with MII as they relate to the use of the "Fairfield Inn by Marriott"
flag except that it was an event of default under the Ground Lease if the PIPs
were not completed by November 30, 2003. The PIPs were not completed by November
30, 2003. The Partnership's default under the Franchise Agreement also
constituted a default under the Ground Lease and the loan encumbering the
Partnership's properties. The Franchise Agreements permit the Inns to be
operated as "Fairfield Inns by Marriott." See "The Fairfield Inn by Marriott
System" below.

         In addition, as a result of the Partnership's declining operations, the
Partnership has failed to meet its debt service payments on its loan encumbering
its properties since November 11, 2002. On March 26, 2003, the Partnership
received notice from MII as the ground lessor with respect to 30 of the Inns,
that it was in default under the ground lease agreements, due to its failure to
pay the full amount due of minimum rentals owed under the Ground leases
beginning in January 2003. On May 9, 2003, the lender exercised its right to
cure the default and paid the non-subordinated ground rent owed under the ground
lease agreements through March 2003. On behalf of the Partnership, the lender
has continued to pay the non-subordinated ground rent under the Ground leases
through December 2003.

Plan of Liquidation

         As a result of these defaults, the Partnership engaged in discussions
with its lender as well as MII to seek a further restructuring of the
Partnership's debt and ground lease. Effective December 5, 2003, the Partnership
entered into an agreement with its lender and MII which provides that the lender
and MII will forbear in the exercise of their remedies under the relevant
documents due to the then existing defaults, including the non-payment of debt
service and ground rent and the failure to complete required MII PIPs on a
timely basis, all due to a lack of operating revenues, and to implement a
liquidation of the Partnership's Inns. In exchange for the agreement to
liquidate, the lender has agreed to pay the Partnership: (i) $65,217 per Inn
sold, payable upon the sale of each Inn, and (ii) an additional amount equal to
10% of the aggregate net sale proceeds from the sale of all Inns in excess of a
graduated incentive fee base, plus any additional amounts the lender advances in
connection with the liquidation process. Based upon estimates by management, the
Inns will not generate gross sales proceeds in excess of the threshold amount.
It is anticipated that the lender will advance funds to: (a) permit capital
improvements to be conducted at the Inns, which is required by MII, and will
also increase the marketability of the Inns for sale, and (b) fund operating
expenses, including payment of real estate taxes, as a result of insufficient
operating revenue. In the event all the Inns are not sold by April 1, 2005, the
Partnership has agreed to allow the lender to exercise its rights under the loan
documents, which may include foreclosure, without interference from the

                                       4
<PAGE>

Partnership. Accordingly, if all of the Inns are not sold by April 1, 2005, it
is likely that the remaining Inns will be lost to the lender through
foreclosure.

         In connection with the agreement, an affiliate of MII, as ground
lessor, agreed to waive up to $1.2 million of ground rent for a period of up to
one year, and any additional ground rent due in excess of $1.2 million will be
deferred until the earlier of: (i) the sale of an Inn, or (ii) April 1, 2005;
provided, however that in the event a default arises under the agreements
reached with MII at any time, all ground rent shall become immediately due and
payable. MII, as franchisor, has agreed that for those Inns that will remain in
the Fairfield Inn by Marriott system, the property improvement plans are not
required to be completed until April 1, 2005, however the work must be commenced
by September 1, 2004, and has also agreed to waive any liquidated damages that
otherwise may be due to MII arising from the early termination of a franchise
agreement due to the sale of an Inn through September 1, 2004, and thereafter
reduced the amount to $25,000 per property for Inns sold between September 1,
2004 and November 30, 2004. In exchange for these ground rent and franchise
termination fee concessions, the Partnership has agreed to remove 12 of the
Inns, as identified by MII, from the Fairfield Inn by Marriott system no later
than September 1, 2004 and keep six of the Inns, as identified by MII, in the
Fairfield Inn by Marriott system. The remaining Inns can be sold either as a
Fairfield Inn by Marriott or without the franchise agreement. In the event PIPs
are not completed by April 1, 2005 for any Inn not sold, it will result in a
default under the MII agreements, and permit MII to terminate the franchise
agreements. Further, upon the termination of any franchise agreement, the
Partnership must purchase MII's interest under all ground leases.

         On November 20, 2003, the Partnership engaged a nationally recognized
broker to begin marketing the Inns for sale. It is expected that the Partnership
will, in all likelihood, be dissolved in 2005, either upon the sale of all Inns
or as a result of the foreclosure by the lender of any remaining Inns not
otherwise sold. The Partnership sold 3 of its Inns during the first quarter of
2004 and has entered into contracts to sell an additional 11 of its Inns. See
"Property Sales" below. It is expected that these properties will be sold, if at
all, during the second quarter of 2004.

Competition

         The United States lodging industry is segmented into full service and
limited service properties. The Inns are included within the limited service
segment and directly compete in the sub-segment of mid-scale properties without
food and beverage facilities. This segment is highly competitive and includes
many name brands including Comfort Inn and Suites, Holiday Inn Express, Hampton
Inn and Suites, La Quinta Inn and Suites, Sleep Inn, Country Inn and Suites,
Candlewood Hotels and Wingate Inns. Competition is based primarily on the level
of service, quality of accommodations, convenience of locations and room rates.
Full service hotels generally offer restaurant and lounge facilities and meeting
space, as well as a wide range of services and amenities. Hotels within our
competitive set generally offer basic guest room accommodations with limited or
no services and amenities.

         Based on data by Smith Travel Research, supply in this sub-segment
increased significantly in the late 1990's, growing at rates in excess of 11%
annually, which exceeded demand growth for each year during the period from 1995
through 1999. Additionally, the supply growth rate is projected to continue to
grow for the next three years, which will increase the competitive pressure on
the Inns. These new products frequently reflect updated designs and features,
which increases the need to make capital expenditures at the Inns in order for
them to compete effectively. In addition to competing brands, customers compare
the Inns to other Fairfield Inn by Marriott properties. The Partnership's Inns,
which are 14 to 17 years old, struggle to compete with newer Fairfield Inn
properties, which benefit from design enhancements and a more contemporary feel,
as well as other limited service properties in the marketplaces where the
Partnership operates.

         The inclusion of the Inns within the nationwide Fairfield Inn by
Marriott hotel system provides advantages of name, recognition, and centralized
reservations and advertising, system-wide marketing and promotion, centralized
purchasing and training and support services. As economy hotels, the Inns
compete with limited service hotels in their respective markets by providing
streamlined services and amenities at prices that are significantly lower than
those available at full service hotels.

                                       5
<PAGE>


The Fairfield Inn by Marriott System

         As part of the "Fairfield Inn by Marriott" system, the Manager is
required to furnish specific chain services to the Inns, which services are
furnished generally on a central or regional basis to all Inns in the Fairfield
Inn by Marriott hotel system that are owned, leased, or managed by MII and its
subsidiaries. Costs and expenses incurred in providing such services are
allocated among all domestic Fairfield Inn by Marriott hotels managed, owned or
leased by MII or its subsidiaries. The costs and expenses are allocated among
all Inns based on the gross revenues of each Inn.

         Beginning in 1997, the Partnership's Inns began participating in MII's
Marriott Rewards Program ("MRP"). The cost of this program is charged to all
hotels in the full-service, Residence Inn by Marriott, Courtyard by Marriott and
Fairfield Inn by Marriott systems based upon the MRP revenues at each hotel or
Inn. The total amounts of chain services and MRP costs allocated to the
Partnership for the nine months ended September 30, 2003 and for the years ended
December 31, 2002 and 2001 were $3.6 million, $5.0 million and $1.8 million,
respectively. These expenses increased in 2002 due to the terms of the new
franchise agreement entered with MII effective November 30, 2001. This increase
was offset by a decline in administrative expenses, such as central office
services charged by MII.

         In addition, MII maintains a marketing fund to pay the costs associated
with specified system-wide advertising, marketing, sales, promotional and public
relations materials and programs. Each Inn within the system contributes
approximately 2.5% (for 2003and 2002) and 2.4% (for 2001 and prior) of gross Inn
revenues to the marketing fund. For the nine months ended September 30, 2003 and
the years ended December 31, 2002 and 2001, the Partnership contributed $1.4
million, $1.9 million and $1.9 million, respectively, to the marketing fund.

Ground

         As indicated above, the land on which 30 of our Inns are located is
leased from MII or its affiliates. Under the leases, the Partnership is required
to pay all costs, expenses, taxes and assessments relating to the leased Inns
and the underlying land, including real estate taxes. Each ground lease provides
that the Partnership has a first right of refusal in the event the applicable
ground lessor decides to sell the leased premises. Upon expiration or
termination of a ground lease, title to the applicable Inn and all improvements
reverts to the ground lessor. Under the terms of the December 5, 2003 agreement,
the Partnership must purchase the land underlying an Inn from the ground lessor
upon the sale of the Inn or removal of the Inn from the "Fairfield Inn by
Marriott" system.

Mortgage Debt

         As of December 31, 2003, the outstanding balance of principal and
accrued interest on the mortgage debt was $135.3 million, which bears interest
at a fixed rate of 8.40%. The non-recourse mortgage debt was scheduled to mature
on January 11, 2017. The mortgage debt is secured by first mortgages on all of
the Inns, the land on which they are located, or an assignment of the
Partnership's interest under the ground leases, including ownership interest in
all improvements thereon, fixtures and personal property related thereto. As
described above, under the terms of the December 5, 2003 agreement to liquidate,
the lender has agreed to pay the Partnership: (i) $65,217 per Inn sold, payable
upon the sale of each Inn, and (ii) an additional amount equal to 10% of the
aggregate net sale proceeds from the sale of all Inns in excess of a graduated
incentive fee base, plus any additional amounts the lender advances in
connection with the liquidation process. At present, based upon management's
estimates, the sale of the Inns will not generate gross sales proceeds in excess
of the threshold amount. It is anticipated that the lender will advance funds
to: (a) permit capital improvements to be conducted at the Inns, which is
required by MII, and will also increase the marketability of the Inns for sale,
and (b) fund operating expenses, including payment of real estate taxes, as a
result of insufficient operating revenue. In the event all the Inns are not sold
by April 1, 2005, the Partnership has agreed to allow the lender to exercise its
rights under the loan documents, which may include foreclosure, without
interference from the Partnership. Accordingly, if all of the Inns are not sold
by April 1, 2005, it is likely that the remaining Inns will be lost to the
lender through foreclosure.

Property Sales

         On July 29, 2002, the Partnership sold one of its inns located in
Montgomery, Alabama for $3.1 million. The net proceeds from the sale of
approximately $2.9 million were applied toward the Partnership's mortgage debt,
in

                                       6
<PAGE>

accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $2.1 million.

         On August 12, 2002, the Partnership sold its inn located in Charlotte
(Airport), North Carolina for $2.5 million. The net proceeds from the sale of
approximately $0.3 million, which is net of approximately $1.9 million
attributed to the ground lease buyout, were applied toward the Partnership's
mortgage debt, in accordance with the terms of the loan agreement. The
Partnership recognized a gain on the sale of approximately $0.2 million.

         On August 14, 2002, the Partnership sold its inn located in Atlanta
(Southlake), Georgia for approximately $3.0 million. The net proceeds from the
sale of approximately $2.8 million were applied toward the Partnership's
mortgage debt, in accordance with the terms of the loan agreement. The
Partnership recognized a gain on the sale of approximately $0.2 million.

         On October 9, 2002, the Partnership sold its inn located in Chicago
(Lansing), Illinois for $2.3 million. The net proceeds from the sale of
approximately $1.4 million, which is net of approximately $0.7 million
attributed to the ground lease buyout, will be applied toward the Partnership's
mortgage debt, in accordance with the terms of the loan agreement. The
Partnership recognized a gain on the sale of approximately $1.1 million.

         On March 24, 2004, the Partnership sold its inn located in Norcross,
Georgia for $1.5 million. After closing costs and the payment to the Partnership
of the $65,217 as agreed to under the liquidation plan, the net proceeds from
the sale of approximately $1.3 million were applied toward the Partnership's
mortgage debt. The Partnership recognized a loss of the sale of $3,000.

         On March 25, 2004, the Partnership sold its inns located in Buena Park
and Placentia, California for an aggregate price of $8.75 million. After payment
for the purchase of the ground for $3.6 million, closing costs and the payment
to the Partnership of $130,434, as agreed to under the liquidation plan, the net
proceeds from the sale of approximately $4.5 million were applied toward the
Partnership's mortgage debt. The Partnership recognized a loss of the sale of
$7,000.

Employees

         The Partnership has no employees. Services are performed for the
Partnership by the general partner and agents retained by the Partnership
including Sage.

Seasonality

         Demand at the Inns is affected by normally recurring seasonal patterns.
For most of the Inns, demand is higher in the spring and summer months (March
through October) than during the remainder of the year.

ITEM 2. PROPERTIES

         The Partnership's portfolio consists of 43 Fairfield Inn by Marriott
properties as of March 29, 2004. The Inns, which range in age between 14 and 17
years, are geographically diversified among 16 states.

         The following table presents the location and number of rooms for each
of the Inns owned as of March 29, 2004. All of the Inns are managed by Sage. See
Item 1. Business. The land on which the Inns are located is either owned by us
or leased under a long-term agreement.

        Location of Inn                                          Number of Rooms
        ---------------                                          ---------------

        Alabama
             Birmingham--Homewood(1)                                    132
        California
             Los Angeles--Buena Park(1)(2)                              135
             Los Angeles--Placentia(2)                                  135

                                       7
<PAGE>

        Florida
             Gainesville(1)                                             135
             Miami--West(1)                                             135
             Orlando--International Drive(1)                            135
             Orlando--South(1)(3)                                       132
        Georgia
             Atlanta--Airport(1)(3)                                     132
             Atlanta--Gwinnett Mall(3)                                  135
             Atlanta--Northlake(1)                                      133
             Atlanta--Northwest(1)                                      130
             Atlanta--Peachtree Corners(2)                              135
             Savannah(1)                                                135
        Illinois
             Bloomington--Normal(1)                                     128
             Peoria                                                     135
             Rockford                                                   135
        Indiana
             Indianapolis--Castleton(1)(3)                              132
             Indianapolis--College Park                                 132
        Iowa
               Des Moines--West(1)                                      135
        Kansas
             Kansas City--Merriam                                       135
             Kansas City--Overland Park                                 134
        Michigan
             Detroit--Airport(1)                                        133
             Detroit--Auburn Hills(1)                                   134
             Detroit--Madison Heights(1)(3)                             134
             Detroit--Warren(1)(3)                                      132
             Detroit--West (Canton)(1)(3)                               133
             Kalamazoo(1)(3)                                            133
        Missouri
             St.  Louis--Hazelwood(3)                                   135
        North Carolina
             Charlotte--Northeast(1)                                    133
             Durham(1)                                                  135
             Fayetteville(1)                                            135
             Greensboro(1)                                              135
             Raleigh--Northeast(1)                                      132
             Wilmington                                                 134
        Ohio
             Cleveland--Airport                                         135
             Columbus--North(1)                                         135
             Dayton--North(1)                                           135
             Toledo--Holland                                            134
        South Carolina
             Florence                                                   134
             Greenville                                                 132
             Hilton Head(1)                                             119
        Tennessee
             Johnson City(1)                                            132
        Virginia
             Hampton(3)                                                 134
             Virginia Beach(1)                                          134



                                       8
<PAGE>



         Wisconsin
              Madison(1)(3)                                             135
              Milwaukee--Brookfield                                     135

         TOTAL                                                        6,137

(1) The land on which the Inn is located is leased by the Partnership from
Marriott International under a long-term lease agreement. See "Item 1.
Business-Ground Lease."
(2) Property was sold during the first quarter of 2004.
(3) Property is under contract for sale.

Occupancy

         The following table sets forth the average occupancy rates at the Inns
for the years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
Location of Inn                                    2003                      2002                     2001
---------------                                    ----                      ----                     ----
<S>                                                <C>                       <C>                      <C>
Alabama
   Birmingham--Homewood                           61.1%                     60.0%                     60.8%
California
   Los Angeles--Buena Park(1)                     75.9%                     60.2%                     68.3%
   Los Angeles--Placentia(1)                      72.8%                     67.4%                     74.9%
Florida
   Gainesville                                    71.5%                     64.4%                     61.6%
   Miami--West                                    66.3%                     68.9%                     72.7%
   Orlando--International Drive                   55.3%                     56.0%                     63.2%
   Orlando--South(2)                              55.3%                     48.9%                     55.6%
Georgia
   Atlanta--Airport(2)                            57.2%                     60.6%                     70.0%
   Atlanta--Gwinnett Mall(2)                      50.7%                     48.5%                     59.1%
   Atlanta--Northlake                             52.5%                     48.0%                     59.5%
   Atlanta--Northwest                             49.6%                     54.0%                     58.3%
   Atlanta--Peachtree Corners(1)                  41.3%                     46.1%                     59.6%
   Savannah                                       72.9%                     66.5%                     67.6%
Illinois
   Bloomington--Normal                            58.0%                     60.1%                     68.3%
   Peoria                                         54.7%                     61.3%                     64.5%
   Rockford                                       49.9%                     51.3%                     57.4%
Indiana
   Indianapolis--Castleton(2)                     53.0%                     54.3%                     61.1%
   Indianapolis--College Park                     47.2%                     50.2%                     58.0%
Iowa
     Des Moines--West                             63.8%                     65.6%                     63.1%
Kansas
   Kansas City--Merriam                           54.4%                     60.9%                     64.5%
   Kansas City--Overland Park                     49.8%                     55.2%                     58.3%
Michigan
   Detroit--Airport                               76.8%                     75.2%                     79.5%
   Detroit--Auburn Hills                          59.1%                     61.4%                     65.2%
   Detroit--Madison Heights(2)                    65.8%                     64.0%                     69.6%
   Detroit--Warren(2)                             51.5%                     50.1%                     60.1%
   Detroit--West (Canton)(2)                      67.3%                     61.4%                     68.1%
   Kalamazoo(2)                                   58.3%                     62.8%                     63.0%

                                       9
<PAGE>

Missouri
   St. Louis--Hazelwood(2)                        59.2%                     57.6%                     63.6%
North Carolina
   Charlotte--Northeast                           48.3%                     38.5%                     38.3%
   Durham                                         65.0%                     66.2%                     67.1%
   Fayetteville                                   90.4%                     84.4%                     64.4%
   Greensboro                                     61.9%                     63.6%                     59.8%
   Raleigh--Northeast                             60.1%                     56.2%                     52.5%
   Wilmington                                     53.7%                     56.8%                     53.3%

Ohio
   Cleveland--Airport                             61.2%                     54.8%                     61.0%
   Columbus--North                                55.7%                     59.1%                     67.1%
   Dayton--North                                  76.2%                     66.4%                     65.7%
   Toledo--Holland                                54.0%                     59.5%                     65.2%
South Carolina
   Florence                                       70.1%                     74.4%                     71.1%
   Greenville                                     53.3%                     53.5%                     57.4%
   Hilton Head                                    64.8%                     58.5%                     52.5%
Tennessee
   Johnson City                                   53.2%                     53.3%                     51.6%
Virginia
   Hampton(2)                                     70.2%                     57.5%                     55.4%
   Virginia Beach                                 72.2%                     68.4%                     66.8%
Wisconsin
   Madison(2)                                     57.1%                     59.1%                     60.0%
   Milwaukee--Brookfield                          53.9%                     53.9%                     62.2%

Total Average Occupancy                           60.3%                     59.2%                     62.0%
</TABLE>

(1) Property was sold during the first quarter of 2004.
(2) Property is under contract for sale.

Room Rates

         The following table sets forth the average daily room rates at the Inns
for the years ended December 31, 2003, 2002 and 2001. Average daily room rate is
the annual room revenue divided by the number of paid occupied rooms for the
year.

<TABLE>
<CAPTION>
Location of Inn                                    2003                      2002                     2001
---------------                                    ----                      ----                     ----
<S>                                                <C>                       <C>                      <C>
Alabama
   Birmingham--Homewood                           $48.72                    $49.52                   $50.11
California
   Los Angeles--Buena Park(1)                     $46.38                    $51.98                   $55.19
   Los Angeles--Placentia(1)                      $52.75                    $57.14                   $56.13
Florida
   Gainesville                                    $50.11                    $51.49                   $49.47
   Miami--West                                    $55.44                    $57.16                   $63.04
   Orlando--International Drive                   $57.42                    $61.74                   $59.10
   Orlando--South(2)                              $42.37                    $46.94                   $45.96
Georgia
   Atlanta--Airport(2)                            $47.59                    $52.82                   $48.99
   Atlanta--Gwinnett Mall(2)                      $45.41                    $53.51                   $54.51

                                       10
<PAGE>

   Atlanta--Northlake                             $44.57                    $52.05                   $49.46
   Atlanta--Northwest                             $49.05                    $54.32                   $52.82
   Atlanta--Peachtree Corners(1)                  $41.61                    $46.09                   $46.31
   Savannah                                       $52.39                    $56.31                   $54.18
Illinois
   Bloomington--Normal                            $55.39                    $59.87                   $58.71
   Peoria                                         $56.69                    $56.19                   $52.62
   Rockford                                       $51.26                    $49.80                   $47.28
Indiana
   Indianapolis--Castleton(2)                     $54.44                    $53.84                   $52.99
   Indianapolis--College Park                     $49.54                    $51.98                   $48.27
Iowa
    Des Moines--West                              $49.58                    $52.03                   $54.81
Kansas
   Kansas City--Merriam                           $47.71                    $49.40                   $48.56
   Kansas City--Overland Park                     $53.24                    $56.06                   $55.32
Michigan
   Detroit--Airport                               $57.83                    $61.68                   $70.06
   Detroit--Auburn Hills                          $57.25                    $59.76                   $64.86
   Detroit--Madison Heights(2)                    $58.51                    $64.57                   $62.31
   Detroit--Warren(2)                             $46.11                    $53.57                   $55.62
   Detroit--West (Canton)(2)                      $52.05                    $57.62                   $60.96
   Kalamazoo(2)                                   $55.14                    $54.90                   $54.22
Missouri
   St. Louis--Hazelwood(2)                        $48.91                    $50.38                   $50.01
North Carolina
   Charlotte--Northeast                           $40.11                    $45.86                   $47.68
   Durham                                         $47.43                    $51.87                   $51.57
   Fayetteville                                   $63.03                    $59.80                   $53.55
   Greensboro                                     $58.03                    $57.26                   $57.64
   Raleigh--Northeast                             $44.70                    $48.68                   $51.20
   Wilmington                                     $54.14                    $54.11                   $56.26
Ohio
   Cleveland--Airport                             $48.24                    $55.03                   $56.20
   Columbus--North                                $51.95                    $53.77                   $49.86
   Dayton--North                                  $51.08                    $52.25                   $52.04
   Toledo--Holland                                $49.57                    $51.69                   $52.52
South Carolina
   Florence                                       $55.00                    $53.45                   $51.53
   Greenville                                     $43.07                    $44.75                   $45.37
   Hilton Head                                    $59.85                    $65.22                   $64.28
Tennessee
   Johnson City                                   $53.10                    $50.88                   $46.00
Virginia
   Hampton(2)                                     $57.87                    $57.94                   $51.50
   Virginia Beach                                 $64.08                    $59.67                   $54.89
Wisconsin
   Madison(2)                                     $51.05                    $52.13                   $48.45
   Milwaukee--Brookfield                          $56.57                    $56.46                   $52.95

Total Average Room Rate                           $51.66                    $54.31                   $53.48
</TABLE>

(1) Property was sold during the first quarter of 2004.
(2) Property is under contract for sale.


                                       11
<PAGE>

Real Estate Taxes

         Real estate taxes billed and rates in 2003 for each of the Inns were:

<TABLE>
<CAPTION>
Location of Inn                                    Billing                   Rate(1)
---------------                                    -------                   -------
<S>                                                <C>                       <C>
Alabama
   Birmingham--Homewood                            $48,116                   1.50%
California
   Los Angeles--Buena Park(2)                      $54,246                   1.14%
   Los Angeles--Placentia(2)                       $58,554                   1.11%

Florida
   Gainesville                                     $59,578                   2.49%
   Miami--West                                     $73,943                   2.25%
   Orlando--International Drive                    $83,543                   2.05%
   Orlando--South(3)                               $48,635                   1.98%
Georgia
   Atlanta--Airport(3)                             $62,082                   2.19%
   Atlanta--Gwinnett Mall(3)                       $46,894                   1.28%
   Atlanta--Northlake.                             $88,420                   1.55%
   Atlanta--Northwest                              $47,540                   1.20%
   Atlanta--Peachtree Corners(2)                   $44,870                   1.54%
   Savannah                                        $82,052                   1.79%
Illinois
   Bloomington--Normal                             $48,116                   2.40%
   Peoria                                          $96,410                   2.69%
   Rockford                                       $116,392                   3.63%
Indiana
   Indianapolis--Castleton(3)                      $38,343                   2.13%
   Indianapolis--College Park                      $47,944                   2.17%
Iowa
     Des Moines--West                             $100,035                   3.34%
Kansas
   Kansas City--Merriam                            $66,475                   2.45%
   Kansas City--Overland Park                      $56,654                   2.13%
Michigan
   Detroit--Airport                                $79,611                   2.51%
   Detroit--Auburn Hills                           $82,670                   1.19%
   Detroit--Madison Heights(3)                    $119,527                   2.28%
   Detroit--Warren(3)                              $69,956                   1.91%
   Detroit--West (Canton) (3)                      $60,291                   1.57%
   Kalamazoo(3)                                    $92,896                   3.23%
Missouri
   St. Louis--Hazelwood(3)                         $74,431                   3.04%
North Carolina
   Charlotte--Northeast                            $32,502                   1.16%
   Durham                                          $39,145                   1.31%
   Fayetteville                                    $75,956                   1.42%
   Greensboro                                      $32,870                   1.33%
   Raleigh--Northeast                              $28,926                   0.99%
   Wilmington                                      $35,521                   1.15%

                                       12
<PAGE>

Ohio
   Cleveland--Airport                             $103,536                   2.06%
   Columbus--North                                 $47,101                   1.85%
   Dayton--North                                   $69,750                   1.99%
   Toledo--Holland                                 $53,300                   1.97%
South Carolina
   Florence                                        $37,074                   1.38%
   Greenville                                      $32,310                   1.58%
   Hilton Head                                     $57,292                   1.50%
Tennessee
   Johnson City                                    $39,850                   1.59%
Virginia
   Hampton(3)                                      $48,370                   1.51%
   Virginia Beach                                  $50,752                   1.33%
Wisconsin
   Madison(3)                                      $58,065                   2.27%
   Milwaukee--Brookfield                           $60,637                   1.58%
</TABLE>

(1) The real estate tax rates calculated by dividing the 2003 tax liability by
the 2003 assessed value of the property.
(2) Property was sold during the first quarter of 2004.
(3) Property is under contract for sale.


ITEM 3. LEGAL PROCEEDINGS

         None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.




                                       13
<PAGE>


                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS

         Units of the Partnership are not publicly traded. There are certain
restrictions set forth in the Partnership's amended limited partnership
agreement (the "Limited Partnership Agreement") that may limit the ability of a
limited partner to transfer Units. Such restrictions could impair the ability of
a limited partner to liquidate its investment in the event of an emergency or
for any other reason.

         As of March 1, 2004, there were 2,470 holders of Units of the
Partnership, owning an aggregate of 83,337 Units.

         The Partnership did not make a distribution during the year ended
December 31, 2003 but made a distribution of $2.4 million during the year ended
December 31, 2002. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", for a discussion of additional
factors which may affect the Partnership's ability to pay distributions.

         Over the past few years, many companies have begun making
"mini-tenders" (offers to purchase an aggregate of less than 5% of the total
outstanding Units) for Units. Pursuant to the rules of the Securities and
Exchange Commission, when a tender offer is commenced for Units, the Partnership
is required to provide limited partners with a statement setting forth whether
it believes limited partners should tender or whether it is remaining neutral
with respect to the offer. Unfortunately, the rules of the Securities and
Exchange Commission do not require that the bidders in certain tender offers
provide the Partnership with a copy of their offer. As a result, the general
partner often does not become aware of such offers until shortly before they are
scheduled to expire or even after they have expired. Accordingly, the general
partner does not have sufficient time to advise limited partners of its position
on the tender. In this regard, please be advised that pursuant to the
discretionary right granted to the general partner of the Partnership in the
Limited Partnership Agreement to reject any transfers of Units, the general
partner will not permit the transfer of any Unit in connection with a tender
offer unless: (i) the Partnership is provided with a copy of the bidder's
offering materials, including amendments thereto, simultaneously with their
distribution to the limited partners; (ii) the offer provides for withdrawal
rights at any time prior to the expiration date of the offer and, if payment is
not made by the bidder within 60 days of the date of the offer, after such 60
day period; and (iii) the offer must be open for at least 20 business days and,
if a material change is made to the offer, for at least 10 business days
following such change.


                                       14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

         The following table presents selected historical financial data which
data has been derived from our audited financial statements for those years
presented. You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited financial statements included herein.

                             Selected Financial Data
             (in thousands, except per unit amounts and ratio data)

<TABLE>
<CAPTION>
                                           January 1
                                            through
                                          September 30,
                                              2003           2002          2001          2000          1999
                                              ----           ----          ----          ----          ----
<S>                                        <C>            <C>           <C>           <C>           <C>
Income Statement Data:
  Revenues                                  $55,904        $78,797       $ 83,865      $ 91,478      $ 93,084
  Operating (loss) profit                   (15,351)            (3)           496        (2,848)        3,885
  Net (loss) income                         (24,161)        (8,548)       (11,472)        8,709        (8,552)
  Net (loss) income per limited
    partner unit (83,337 Units)                (287)          (102)          (136)          103          (102)
Balance Sheet Data:
  Total assets                                   --        114,901        136,967       147,082       163,574
  Total liabilities                              --        150,650        161,768       160,411       185,612
Other Data (unaudited):
  Cash distributions per limited                 --         $28.51             --            --            --
    partner unit (83,337 Units)
  Deficiency of earnings to fixed           $24,161         $8,548        $11,472       $14,774       $ 8,552
    charges
</TABLE>


           STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION (1)
                                 (in thousands)

                                                                Period from
                                                             September 30, 2003
                                                                  through
                                                             December 31, 2003
                                                             ------------------
Net Liabilities in Liquidation as of  September 30, 2003          $41,495
Operating Loss                                                      3,165
Changes in net assets in liquidation:
         Decrease in fair value of real estate                     25,554
         Decrease in inventory value                                  920
                                                                  -------

Net Liabilities in Liquidation as of  December 31, 2003           $71,134
                                                                  =======


(1) On December 5, 2003, in accordance with the agreement reached between the
Partnership, its lender and MII, the Partnership adopted the liquidation basis
of accounting, and financial statement presentation has been adopted beginning
September 30, 2003.


                                       15
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         Certain matters discussed herein are forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should,"
"estimates," or "anticipates," or the negative thereof or other variations
thereof or comparable terminology. All forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
transactions, results, performance or achievements to be materially different
from any future transactions, results, performance or achievements expressed or
implied by such forward- looking statements. Although we believe the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained or that any deviations will not be material. We disclaim any
obligations or undertaking to publicly release any updates or revisions to any
forward-looking statement contained in this report on Form 10-K to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.

GENERAL

         At December 31, 2002, the Partnership was the owner of 46 limited
service Inns, which are operated as part of the Fairfield Inn by Marriott
system, and until November 30, 2001, managed by Fairfield FMC Corporation.
Beginning November 30, 2001, Sage began providing management at the properties.
Under Sage the Inns continue to be operated under the Fairfield Inn by Marriott
system. During the first quarter of 2004, the Partnership sold three of its
Inns.

         Effective December 5, 2003, the Partnership entered into an agreement
with its lender and Marriott International, Inc. ("MII") which provides that the
lender and MII will forbear in the exercise of their remedies under the relevant
documents due to the then existing defaults, including the non-payment of debt
service and ground rent and the failure to complete required MII PIPs on a
timely basis, all due to a lack of operating revenues, and to implement a
liquidation of the Partnership's Inns. In exchange for the agreement to
liquidate, the lender has agreed to pay the Partnership: (i) $65,217 per Inn
sold, payable upon the sale of each Inn, and (ii) an additional amount equal to
10% of the aggregate net sale proceeds from the sale of all Inns in excess of a
graduated incentive fee base, plus any additional amounts the lender advances in
connection with the liquidation process. At present, based upon management's
estimates, the sales of the Inns will not generate gross sales proceeds in
excess of the threshold amount. It is anticipated that the lender will advance
funds to: (a) permit capital improvements to be conducted at the Inns, which is
required by MII, and will also increase the marketability of the Inns for sale,
and (b) fund operating expenses, including payment of real estate taxes, as a
result of insufficient operating revenue. In the event all the Inns are not sold
by April 1, 2005, the Partnership has agreed to allow the lender to exercise its
rights under the loan documents, which may include foreclosure, without
interference from the Partnership. Accordingly, if all of the Inns are not sold
by April 1, 2005, it is likely that the remaining Inns will be lost to the
lender through foreclosure.

         In connection with the agreement, an affiliate of MII, as ground
lessor, agreed to waive up to $1.2 million of ground rent for a period of up to
one year, and any additional ground rent due in excess of $1.2 million will be
deferred until the earlier of: (i) the sale of an Inn, or (ii) April 1, 2005;
provided, however that in the event a default arises under the agreements
reached with MII at any time, all ground rent shall become immediately due and
payable. MII, as franchisor, has agreed that for those Inns that will remain in
the Fairfield Inn by Marriott system, the property improvement plans are not
required to be completed until April 1, 2005, however the work must be commenced
by September 1, 2004, and has also agreed to waive any liquidated damages that
otherwise may be due to MII arising from the early termination of a franchise
agreement due to the sale of an Inn through September 1, 2004, and thereafter
reduced the amount to $25,000 per property for Inns sold between September 1,
2004 and November 30, 2004. In exchange for these ground rent and franchise
termination fee concessions, the Partnership has agreed to remove 12 of the
Inns, as identified by MII, from the Fairfield Inn by Marriott system no later
than September 1, 2004 and keep six of the Inns, as identified by MII, in the
Fairfield Inn by Marriott system. The remaining Inns can be sold either as a
Fairfield Inn by Marriott or without the franchise agreement. In the event PIPs
are not completed by April 1, 2005 for any Inn not sold, it will result in a
default under the MII agreements, and permit MII to terminate the franchise
agreements. Further, upon the termination of any franchise agreement, the
Partnership must purchase MII's interest under all ground leases.

                                       16
<PAGE>

         On November 20, 2003, the Partnership engaged a nationally recognized
broker to begin marketing the Inns for sale. It is expected that the Partnership
will, in all likelihood, be dissolved in 2005, either upon the sale of all Inns
or as a result of the foreclosure by the lender of any remaining Inns not
otherwise sold. As a result, the Partnership has adopted the liquidation basis
of accounting for the period beginning after September 30, 2003. Accordingly,
the Partnership has adjusted its assets to their estimated net realizable value
and liabilities were adjusted to estimated settlement amounts, including
estimated costs associated with carrying out the liquidation. In addition,
pursuant to the liquidation basis of accounting, the Partnership ceased to
record revenues and expenses after that date, and reports only changes in net
assets in liquidation for the periods thereafter.

         The Partnership sold 3 of its Inns during the first quarter of 2004 and
has entered into contracts to sell an additional 11 of its Inns. It is expected
that these properties will be sold, if at all, during the second quarter of
2004.

LIQUIDITY AND CAPITAL RESOURCES

         GOING CONCERN: The Partnership did not have sufficient cash flow from
current operations to make its required debt service payments beginning in
November 2002, nor did it have sufficient cash flow to make its property
improvement fund contributions beginning in September 2002. Further, on March
26, 2003, the Partnership received notice from MII that it was in default under
the ground lease agreements due to its failure to pay the full amount due of
minimum rentals owed under the ground leases beginning in January 2003. A
default under the ground lease agreements also constituted a default under the
loan agreement. On May 7, 2003, the Partnership received notice from MII that
the ground leases would be terminated effective June 15, 2003 for nonpayment. On
May 9, 2003, the lender exercised its right to cure the default and paid the
non-subordinated ground rent owed under the ground leases through March 2003. On
behalf of the Partnership, the lender has continued to pay the non-subordinated
ground rent under the ground leases through December 2003. The Partnership has
recognized the obligation to repay the lender for these advances.

         Effective December 5, 2003, the Partnership reached an agreement with
its lender and MII for those parties to forbear in the exercise of their
remedies under the relevant documents due to certain existing defaults,
including the non-payment of debt service and ground rent and the failure to
complete required MII product improvement plans on a timely basis, all due to a
lack of operating revenues, and to implement a liquidation of the Partnership's
Inns.

         In exchange for the agreement to liquidate, the lender has agreed to
pay the Partnership: (i) $65,217 per Inn sold, payable upon the sale of each
Inn, and (ii) an additional amount equal to 10% of the aggregate net sale
proceeds from the sale of all Inns in excess of a graduated incentive fee base,
plus any additional amounts the lender advances in connection with the
liquidation process. At present, based upon management's estimates, the sale of
the Inns will not generate gross sales proceeds in excess of the threshold
amount. It is anticipated that the lender will advance funds to: (a) permit
capital improvements to be conducted at the Inns, which is required by MII, and
will also increase the marketability of the Inns for sale, and (b) fund
operating expenses, including payment of real estate taxes, as a result of
insufficient operating revenue. In the event all the Inns are not sold by April
1, 2005, the Partnership has agreed to allow the lender to exercise its rights
under the loan documents, which may include foreclosure, without interference
from the Partnership.

         An affiliate of MII, as ground lessor, has agreed to waive up to $1.2
million of ground rent for a period of up to one year, and any additional ground
rent due in excess of $1.2 million will be deferred until the earlier of: (i)
the sale of an Inn, or (ii) April 1, 2005; provided, however that in the event a
default arises under the agreements reached with MII at any time, all ground
rent shall become immediately due and payable. MII, as franchisor, has agreed
that for those Inns that will remain in the Fairfield Inn by Marriott system,
the property improvement plans are not required to be completed until April 1,
2005, however the work must be commenced by September 1, 2004, and has also
agreed to waive any liquidated damages that otherwise may be due to MII arising
from the early termination of a franchise agreement due to the sale of an Inn
through September 1, 2004, and thereafter reduced the amount to $25,000 per
property for Inns sold between September 1, 2004 and November 30, 2004. In
exchange for these ground rent and franchise termination fee concessions, the
Partnership has agreed to remove 12 of the Inns, as identified by MII, from the
Fairfield Inn by Marriott system no later than September 1, 2004 and keep six of
the Inns, as identified by MII, in the Fairfield Inn by Marriott system. The
remaining Inns can be sold either as a Fairfield Inn by Marriott or without the
franchise agreement. In the event product improvement plans are not completed by
April 1, 2005 for any Inn not sold, it will result in a default under

                                       17
<PAGE>

the MII agreements, and permit MII to terminate the franchise agreements.
Further, upon the termination of any franchise agreement, the Partnership must
purchase MII's interest under all ground leases.

         On November 20, 2003, the Partnership engaged a nationally recognized
broker to begin marketing the Inns for sale. It is expected that the Partnership
will, in all likelihood, be dissolved in 2005, either upon the sale of all Inns
or as a result of the foreclosure by the lender of any remaining Inns not
otherwise sold.

         PRINCIPAL SOURCES AND USES OF CASH: The Partnership's principal source
of cash has been cash from operations. The Partnership's principal uses of cash
are to make debt service payments, ground lease payments and fund the property
improvement fund. During the period of liquidation, the Partnership's principal
source of cash will be the $65,217 received upon the sale of each Inn.

         In 2003 during the period in which the Partnership operated as a going
concern, January 1 through September 30, 2003, the Partnership's cash and cash
equivalents, excluding funds held in lender reserves, decreased by $923,000 to
$4.9 million at September 30, 2003 compared to $5.9 million at December 31,
2002. The decrease from the prior year is due to $3.5 million of cash used in
investing activities and $1.8 million of cash used in financing activities,
which were partially offset by $4.4 million of cash provided by operating
activities. Cash used in investing activities consisted of capital improvements
and equipment purchases. Cash used in financing activities consisted of changes
to the restricted cash reserves as required under the terms of the mortgage
debt.

         SALES OF PROPERTIES. On July 29, 2002, the Partnership sold its Inn
located in Montgomery, Alabama for $3.1 million. The net proceeds from the sale
of approximately $2.9 million were applied toward the Partnership's mortgage
debt, in accordance with the terms of the loan agreement. The Partnership
recognized a gain on the sale of approximately $2.1 million.

         On August 12, 2002, the Partnership sold its Inn located in Charlotte
(Airport), North Carolina for $2.5 million. The net proceeds from the sale of
approximately $300,000, which is net of approximately $1.9 million attributed to
the ground lease buyout, were applied toward the Partnership's mortgage debt, in
accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $200,000.

         On August 14, 2002, the Partnership sold its Inn located in Atlanta
(Southlake), Georgia for $3.0 million. The net proceeds from the sale of
approximately $2.8 million were applied toward the Partnership's mortgage debt,
in accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $200,000.

         On October 9, 2002, the Partnership sold its Inn located in Chicago
(Lansing), Illinois for $2.3 million. The net proceeds from the sale of
approximately $1.4 million, which is net of approximately $700,000 attributed to
the ground lease buyout, were applied toward the Partnership's mortgage debt, in
accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $1.1 million.

         On March 24, 2004, the Partnership sold its inn located in Norcross,
Georgia for $1.5 million. After closing costs and the payment to the Partnership
of the $65,217 as agreed to under the liquidation plan, the net proceeds from
the sale of approximately $1.3 million were applied toward the Partnership's
mortgage debt. The Partnership recognized a loss of the sale of $3,000.

         On March 25, 2004, the Partnership sold its inns located in Buena Park
and Placentia, California for an aggregate price of $8.75 million. After payment
for the purchase of the ground for $3.6 million, closing costs and the payment
to the Partnership of $130,434, as agreed to under the liquidation plan, the net
proceeds from the sale of approximately $4.5 million were applied toward the
Partnership's mortgage debt. The Partnership recognized a loss of the sale of
$7,000.


                                       18
<PAGE>

RESULTS OF OPERATIONS

         The following discussion and analysis addresses results of operations
and should be read together with the "Selected Financial Data" and historical
financial statements and related notes included elsewhere herein.

Changes in Net Liabilities in Liquidation

September 30, 2003 to December 31, 2003

Net liabilities in liquidation decreased by $29.6 million from September 30,
2003 to December 31, 2003. Operating loss, which includes property related
income and expenses, and interest expense, was $3.1 million for the period. The
fair value of real estate decreased $25.6 million due to changes in anticipated
proceeds from future property sales based upon current trends in the real estate
markets. The Company realized a loss on the decrease in the fair value of
inventory of $0.9 million.

The Period January 1 through September 30, 2003 compared to the Year Ended
December 31,2002

         The following discussion of results of operations from January 1
through September 30, 2003 compared to the year ended December 31, 2002 do not
contain comparable periods; however such comparison is provided to present a
discussion of general trends in the operating results of the Partnership.

         Rooms Revenues: Rooms revenues decreased $21.4 million, or
approximately 28% to $55.3 million in 2003 from $76.7 million in 2002. Revenues
declined primarily as the result of the adoption of liquidation accounting for
the period subsequent to September 30, 2003, pursuant to which the Partnership
ceased the recognition of revenue during the fourth quarter. Also contributing
to the decline was the sale of four of the Partnership's hotels during 2002,
offset partially by increased revenues due to slightly improved occupancy levels
from a general improvement in the economy.

         Operating Expenses: Operating expenses decreased $7.5 million, or 9.5%,
to $71.3 million when compared to 2002. The principal individual components are
discussed below.

         Room Costs: In 2003, rooms costs decreased $6.4 million or 25.3%, to
$18.9 million when compared to 2002. This decline is the result of the adoption
of liquidation accounting for the period subsequent to September 30, 2003,
pursuant to which the Partnership ceased the recognition of expense during the
fourth quarter. Also contributing to the decline was the sale of four of the
Partnership's hotels during 2002.

         Selling, Administrative and other: Selling, administrative and other
expenses decreased by $6.7 million in 2003 to $19.1 million, or a 25.8% decrease
when compared to 2002. The decrease in these expenses was also due to the
adoption of liquidation accounting for the period subsequent to September 30,
2003, pursuant to which the Partnership ceased the recognition of expense during
the fourth quarter.

         Depreciation: Depreciation expense decreased by $1.4 million or 15% to
$8.0 million for the period January 1 through September 30, 2003 compared to the
year ended December 31, 2002. This was due to the cessation of depreciation in
connection with the adoption of liquidation basis accounting, offset slightly by
additional depreciation on improvements put in place during the period January 1
through September 30, 2003.

         Ground Rent: Ground rent decreased by $95,000 in 2003 to $2.5 million,
or a 3.6% decrease when compared to 2002. The decrease in expenses was also due
to the adoption of liquidation accounting for the period subsequent to September
30, 2003, pursuant to which the Partnership ceased the recognition of expense
during the fourth quarter. That decline was largely offset by the expiration in
2003 of ground rent waivers granted for 2002.

         Base Management Fee: Base management fee decreased $708,000 or
approximately 29.5% to $1.7 million in 2003 from $2.4 million in 2002. The base
management fee declined primarily as the result of the adoption of liquidation
accounting for the period subsequent to September 30, 2003, pursuant to which
the Partnership ceased the recognition of expense during the fourth quarter.
Also contributing to the decline was the sale of four of the Partnership's
hotels during 2002.

                                       19
<PAGE>

         Insurance and other: Insurance and other expenses decreased by $685,000
in 2003 to $2.3 million, or a 22.8% decrease when compared to 2002. The decrease
in expenses was also due to the adoption of liquidation accounting for the
period subsequent to September 30, 2003, pursuant to which the Partnership
ceased the recognition of expense during the fourth quarter.

         Loss on impairment of long-lived assets: In 2003, the Partnership
recorded impairment of long lived assets of million related to 23 of its Inns.
In 2002, the Partnership recorded impairment of long-lived assets of $5.3
million related to its Inns located in Atlanta (Northlake), Georgia; Birmingham,
Alabama; Detroit (Warren), Michigan; St. Louis (Hazelwood), Missouri;
Greenville, South Carolina; and Orlando (South), Florida.

         Operating Loss: As a result of the changes in revenues and operating
expenses discussed above, operating loss increased by $15.3 million resulting in
an operating loss of $15.4 million in 2003 compared to operating loss of $3,000
in 2002.

         Interest Expense: Interest expense decreased by $3.5 million to $8.9
million in 2003 when compared to 2002. The decrease in expense was also due to
the adoption of liquidation accounting for the period subsequent to September
30, 2003, pursuant to which the Partnership ceased the recognition of expense
during the fourth quarter.

         Net Loss: Net loss for 2003 was $24.1 million compared to net loss of
$8.5 million for 2002. The increase is primarily due to the $15.1 million
impairment charge in 2003.

2002 compared to 2001

         Rooms Revenues: Rooms revenues decreased $4.8 million or approximately
5.9% to $76.7 million in 2002 from $81.5 million in 2001, reflecting a 2.8
percentage point decrease in average occupancy to 59.2%. The decrease in average
occupancy was primarily the result of the increased competition in the economy
segment which was exacerbated by the general downturn in the economy experienced
during 2002, which hurt the hospitality industry in general. Revenues also
declined due to the sale of four of the Partnership's hotels during 2002.
Excluding the effect on revenues of the sale of these four hotels, rooms
revenues for the remaining 46 inns decreased $3.0 million, or approximately 3.9%
to $73.0 million in 2002 from $76.0 million in 2001. In 2002, total Inn revenues
decreased $5.1 million, or 6.0%, to $78.8 million when compared to $83.9 million
in 2001.

         Operating Expenses: Operating expenses decreased $4.6 million, or 5.5%,
to $78.8 million when compared to 2001. The individual components are discussed
below.

         Room Costs: In 2002, rooms costs decreased $1.1 million, or 4.2%, to
$25.3 million when compared to 2001. The overall decrease in controllable room
costs is a result of the occupancy decreases at the Inns. Room costs in 2002
were also lower due to the sale of four of the hotels during 2002.

         Selling, Administrative and other: Selling, administrative and other
expenses decreased by $1.3 million in 2002 to $25.8 million, or a 4.8% decrease
when compared to 2001. The decrease in expenses was due to a decrease in repairs
and maintenance expenses.

         Fairfield Inn system fee: In connection with the Partnership's
termination of the management agreement with Fairfield FMC Corporation on
November 30, 2001, the Partnership's obligation to pay system fees is now
included in its franchise fees paid to MII. In 2001, the Partnership recognized
$2.4 million in Fairfield Inn system fee expenses.

         Insurance and other: Insurance and other expenses decreased by $1.1
million in 2002 to $3.0 million, or a 26% decrease when compared to 2001. The
decrease in expense is primarily due the following expenses incurred in 2001:
the payment of a franchise application fee of $500,000 to MII in connection with
the new franchise agreement, legal expenses incurred in connection with the
restructuring, and expenses associated with the transition of the management of
the Inns from MII to Sage.

                                       20
<PAGE>

         Termination of management agreement: In connection with the termination
of the Management Agreement with Fairfield FMC Corporation, the Partnership paid
MII $500,000 and wrote off deferred incentive fees of $2.8 million as the fees
were no longer due.

         Loss on impairment of long-lived assets: In 2002, the Partnership
recorded impairment of long-lived assets of $5.3 million related to its Inns
located in Atlanta (Northlake), Georgia; Birmingham, Alabama; Detroit (Warren),
Michigan; St. Louis (Hazelwood), Missouri; Greenville, South Carolina; and
Orlando (South), Florida. The Partnership recorded an impairment charge of $3.8
million in 2001 related to the Inns located in Greenville, South Carolina;
Charlotte (Northeast), North Carolina; Charlotte (Airport), North Carolina;
Chicago (Lansing), Illinois; Atlanta (Southlake), Georgia; and Atlanta
(Peachtree Corners), Georgia.

         Operating (Loss) Profit: As a result of the changes in revenues and
operating expenses discussed above, operating loss increased by $499,000,
resulting in an operating loss of $3,000 in 2002 compared to operating profit of
$496,000 in 2001.

         Interest Expense: Interest expense decreased by $530,000 to $12.3
million in 2002 when compared to 2001. This decrease is due to the payment of
$11.4 million of principal on the mortgage debt.

         Gain on Disposition of Properties: During 2002, the Partnership
recorded gain on disposition of properties of $3.5 million related to the sale
of its Inns located in Montgomery, Alabama; Charlotte-Airport, North Carolina;
Atlanta-Southlake, Georgia; and Chicago-Lansing, Illinois.

         Net Loss: Net loss for 2002 was $8.5 million compared to net loss of
$11.5 million for 2001. The decrease is primarily due to the $3.5 million gain
on disposition of four of the Partnership's properties and decreases in
operating expenses, offset by the decrease in revenues.


RECENTLY ISSUED ACCOUNTING STANDARDS

         Financial Accounting Standards Board ("FASB") SFAS No. 144 "Accounting
for Impairment or Disposal of Long-Lived Assets" supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard provides guidance beyond that previously specified
in Statement 121 to determine when a long-lived asset should be classified as
held for sale, among other things. This Statement was adopted by the Partnership
effective January 1, 2002. Implementation of the statement did not have a
material effect on the Partnership.

         SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of SFAS No. 13 and Technical Corrections," updates, clarifies and
simplifies existing accounting pronouncements. In part, this statement rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." SFAS No.
145 will be effective for fiscal years beginning after May 15, 2002. Upon
adoption, enterprises must reclassify prior period items that do not meet the
extraordinary item classification criteria in APB Opinion No. 30. This statement
had no effect on the Partnership's financial statements.

         SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing
or other exit or disposal activity. SFAS No. 146 is effective prospectively for
exit and disposal activities initiated after December 31, 2002, with earlier
adoption encouraged. This statement had no effect on the Partnership's financial
statements.

         FASB Interpretation No. 45, "Guarantors' Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's

                                       21
<PAGE>

recognized liability over the term of the related guarantee. The disclosure
provisions of this Interpretation are effective for the Partnership's December
31, 2002 financial statements. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. This Interpretation had
no effect on the Partnership's financial statements.

         FASB issued Interpretation No. 46, "Consolidation of Variable Interest
Entities". This interpretation clarifies the application of existing accounting
pronouncements to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do have sufficient equity
at risk for the entity to finance its activities without additional subordinated
financial support from other parties. In December 2003, FASB issued a revision
to Interpretation No. 46 ("46R") to clarify some of the provisions of
Interpretation No. 46, and exempt to certain entities from its requirements. The
provisions of the interpretation need to be applied no later than December 31,
2004, except for entities that are considered to be special-purpose entities
which need to be applied as of December 31, 2003. This interpretation had no
effect on the Partnership's financial statements.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial reporting and accounting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
changes in the statement improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. In particular, this
statement (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative discussed in SFAS No. 133,
(2) clarifies when a derivative contains a financing component, (3) amends the
definition of an Underlying to conform it to language used in FASB
Interpretation No. 45 and (4) amends certain other existing pronouncements.
Those changes will result in more consistent reporting of contracts either as
derivatives or hybrid instruments. This statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The guidance should be applied prospectively.
The provisions of this statement that relate to SFAS No. 133 implementation
issues that have been effective for fiscal quarters that began prior to June 15,
2003, should continue to be applied in accordance with their respective
effective dates. In addition, certain provisions relating to forward purchases
or sales of when-issued securities or other securities that do not yet exist,
should be applied to existing contracts as well as contracts entered into after
June 30, 2003. This statement has no effect on the Partnership's financial
statements.

         In May 2003, the issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The statement
improves the accounting for certain financial instruments that under pervious
guidance, issuers could account for as equity. The new statement requires that
those instruments be classified as liabilities in statements of financial
position. SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash and
other assets. A second type, which includes put options and forward purchase
contracts, involves instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets. The third type of
instruments that are liabilities under this statement is obligations that can be
settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such a market index, or varies inversely with the
value of the issuers' shares. SFAS No. 150 does not apply to features embedded
in a financial instrument that is not a derivative of the entirety. In addition
to its requirements for the classification and measurement of financial
instruments in its scope, SFAS No. 150 also requires disclosures about
alternative ways of settling the instruments and the capital structures of all
entities, all of whose shares are mandatorily redeemable. Most of the guidance
in SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003 and otherwise was effective at the beginning of the
first interim period beginning after June 15, 2003. This statement has no effect
on the Partnership's financial statements.

CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying financial statements and related footnotes. In preparing
these financial statements, management has made its best estimates and judgments
of certain amounts included in the financial statements, giving due
consideration to materiality. The Partnership does not believe there is a great
likelihood that materially different amounts would be reported related to the
accounting policies described below. However, application of these accounting

                                       22
<PAGE>



policies involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.

         The Partnership adopted the liquidation basis of accounting for all
periods beginning after September 30, 2003. On September 30, 2003, in accordance
with the liquidation basis of accounting, assets were adjusted to estimated net
realizable value and liabilities were adjusted to estimated settlement amounts,
including estimated costs associated with carrying out the liquidation. The
valuation of real estate held for sale is based on current estimates and other
indications of sales value net of estimated selling costs. Actual values
realized for assets and settlement of liabilities may differ materially from the
amounts estimated. Due to the uncertainty in timing of anticipated sales of
property, no provision has been made for estimated future cash flows from
property operations.

         Under the liquidation basis of accounting, the Partnership is required
to estimate and accrue the non-operating costs associated with executing the
plan of liquidation. These amounts can vary significantly due to, among other
things, the timing and realized proceeds from property sales, the costs of
retaining agents and trustees to oversee the liquidation, including the costs of
insurance, the timing and amounts associated with discharging known and
contingent liabilities and the non-operating costs associated with cessation of
the Partnership's operations. These non-operating costs are estimates and are
expected to be paid out over the liquidation period. However, in accordance with
FASB No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", the non-recourse mortgage debt and related
mortgage premium were not adjusted to its estimated settlement amount as the
Partnership has not been legally released from being the primary obligor under
the mortgage debt. Accordingly, the outstanding mortgage balance and accrued and
unpaid interest will continue to be presented at its historical basis.

         Prior to the adoption of the liquidation basis of accounting and during
the nine months ended September 30, 2003 and the years ended December 31, 2002
and 2001, the Partnership recognized $15.3 million, $5.2 million, and $3.8
million, respectively, of impairment losses related to its property and
equipment. An impairment loss was recorded for an Inn if estimated undiscounted
future cash flows were less than the book value of the Inn. Impairment losses
were measured based on the estimated fair value of the Inn. The Partnership
based its estimates of fair values primarily upon tax assessments and sales
comparisons. In assessing the recoverability of the Partnership's property and
equipment the Partnership considered the forecasted financial performance of its
properties.

         Useful lives of long-lived assets: Property and equipment, and certain
other long-lived assets, are amortized over their useful lives. Useful lives are
based on management's estimates of the period that the assets will generate
revenue.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         The Partnership is not subject to market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risk, and we do
not hold any financial instruments for trading purposes. As of December 31,
2003, all of the Partnership's debt has a fixed interest rate.



                                       23
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                   ----

<S>                                                                                                <C>
Independent Auditors' Report.....................................................................   25

Report of Independent Auditors...................................................................   26

Report of Independent Public Accountants.........................................................   28

Statement of Net Liabilities in Liquidation as of December 31, 2003 (Liquidation Basis)
and Balance Sheet as of December 31, 2002 (Going Concern Basis)..................................   29

Statement of Changes in Net Liabilities in Liquidation (Liquidation Basis)
for the period from September 30, 2003 through December 31, 2003.................................   30

Statements of Operations for the period from January 1, 2003 through September 30, 2003
and for the years ended December 31, 2002 and 2001 (Going Concern Basis).........................   31

Statements of Changes in Partners' Deficit for the period from January 1, 2003 through
September 30, 2003 and for the years ended December 31, 2002 and 2001 (Going Concern Basis)......   32

Statements of Cash Flows from January 1, 2003 through September 30, 2003
and for the years ended December 31, 2002 and 2001 (Going Concern Basis).........................   33

Notes to Financial Statements....................................................................   34
</TABLE>




                                       24
<PAGE>


                          Independent Auditors' Report

To the Partners
Fairfield Inn by Marriott Limited Partnership

We have audited the accompanying statement of net liabilities in liquidation of
Fairfield Inn by Marriott Limited Partnership (the "Partnership") as of December
31, 2003, and the statements of operations, changes in partners' deficit and
cash flows for the period from January 1, 2003 through September 30, 2003 (Going
Concern basis). In addition, we have audited the related statement of changes in
net liabilities in liquidation for the period from September 30, 2003 through
December 31, 2003. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, the Partnership has reached
an agreement with its lender and Marriott International, Inc. and its affiliates
to implement a liquidation of all the Partnership's remaining properties, and as
a result, the Partnership has changed its basis of accounting to the liquidation
basis effective September 30, 2003.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Fairfield Inn
by Marriott Limited Partnership for the period from January 1, 2003 through
September 30, 2003, in conformity with accounting principles generally accepted
in the United States of America and its statement of net liabilities in
liquidation as of December 31, 2003 and the changes in net liabilities in
liquidation for the period from September 30, 2003 through December 31, 2003,
applied on the basis described in the preceding paragraph.




                                                   /s/ Imowitz Koenig & Co., LLP


New York, New York
March 25, 2004




                                       25
<PAGE>


                         Report of Independent Auditors


To the Partners
Fairfield Inn by Marriott Limited Partnership

We have audited the accompanying balance sheet of Fairfield Inn by Marriott
Limited Partnership as of December 31, 2002, and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. Our audit also included the financial statement schedule listed in
the Index at Item l5(a). These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit. The
financial statements and schedule of Fairfield Inn by Marriott Limited
Partnership for the years ended December 31, 2001 and 2000, were audited by
other auditors who have ceased operations and whose report dated March 18, 2002,
included an explanatory paragraph that raised substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
on which they reported were before giving effect to the reclassification
adjustments and disclosures described in Note 9.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the financial position of Fairfield Inn by Marriott
Limited Partnership at December 31, 2002, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule as of and for the year ended December 31, 2002,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that Fairfield
Inn by Marriott Limited Partnership will continue as a going concern. As more
fully described in Note 1, the Partnership has incurred recurring operating
losses, has a partners' deficit and is in default on its mortgage loan, and its
ground leases and franchise agreements with Marriott International, Inc.

These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.

As discussed above, the financial statements of Fairfield Inn by Marriott
Limited Partnership as of December 31, 2001, and for the year then ended, were
audited by other auditors who have ceased operations. As described in Note 9,
these financial statements have been revised to reflect the components of
working capital on the balance sheet. We audited the adjustments in Note 9 that
were applied to revise the balance sheet as of December 31, 2001 and the
statement of cash flows for the year ended December 31, 2001. Our procedures
included (a) agreeing the adjusted amounts for cash, accounts receivable,
prepaid expenses and other current assets, and accounts payable to the
Partnership's underlying trial

                                       26
<PAGE>

balances obtained from Management and (b) testing the mathematical accuracy of
the financial statements. In our opinion, such adjustments and disclosures are
appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 financial statements of the
Partnership other than with respect to such adjustments and, accordingly, we do
not express an opinion or any other form of assurance on the 2001 financial
statements taken as a whole.

                                                              Ernst & Young LLP

March 14, 2003,
except for Notes 1 and 7 as to which the date is
March 26, 2003



                                       27
<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE PARTNERS OF FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP:


         We have audited the accompanying balance sheets of Fairfield Inn by
Marriott Limited Partnership (a Delaware limited partnership) as of December 31,
2001 and 2000, and the related statements of operations, changes in partners'
capital (deficit) and cash flows for the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fairfield Inn by
Marriott Limited Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

         The accompanying financial statements have been prepared assuming that
the partnership will continue as a going concern. As discussed in Note 1 to the
financial statements, the partnership has suffered recurring operating losses,
has a net capital deficiency, and the partnership may not be able to meet its
2002 debt obligations. These factors raise substantial doubt about the
partnership's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments relating to recoverability of asset carrying
amounts or the amount of liabilities that might result should the partnership be
unable to continue as a going concern.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                                 Arthur Andersen LLP

Vienna, Virginia
March 18, 2002

Note:
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Fairfield Inn by Marriott Limited Partnership's Annual Report on
Form 10-K for the year ended December 31, 2001. This report has not been
reissued by Arthur Andersen LLP in connection with this filing on Form 10-K.

                                       28
<PAGE>


                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
         STATEMENT OF NET LIABILITIES IN LIQUIDATION (LIQUIDATION BASIS)
                             AS OF DECEMBER 31,2003
         AND BALANCE SHEET (GOING CONCERN BASIS) AS OF DECEMBER 31,2002
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                             Liquidation Basis     Going Concern Basis
                                                                                   2003                    2002
                                                                                 --------                --------
<S>                                                                               <C>                       <C>
ASSETS
Property and equipment, net                                                      $     --                $ 99,626
Properties held for sale                                                          124,972                   1,122
Deferred financing costs, net of accumulated amortization                              --                   1,875
Accounts receivable                                                                 1,162                   1,008
Prepaid insurance and other current assets                                          1,325                   1,270
Inventory                                                                              --                     920
Due from Marriott International, Inc.                                                  --                     387
Property improvement fund                                                           2,156                   2,785
Restricted cash                                                                     1,770                       8
Cash and cash equivalents                                                           3,510                   5,900
                                                                                 --------                --------

Total assets                                                                     $134,895                $114,901
                                                                                 ========                ========


LIABILITIES AND PARTNERS' DEFICIT
Mortgage debt                                                                    $135,311                $137,070
Land Purchase obligation due to Marriott International, Inc                        50,471                      --
Accounts payable and accrued liabilities                                           16,480                   8,546
Due to Marriott International, Inc., its affiliates and other                       2,267                   5,034
Reserved for estimated costs during the period of liquidation                       1,500                      --
                                                                                 --------                --------

Total liabilities                                                                 206,029                 150,650
                                                                                 --------                --------

Net Liabilities in Liquidation                                                   $ 71,134
                                                                                 ========

PARTNERS' DEFICIT
General Partner                                                                                              (307)
Limited Partners                                                                                          (35,442)
                                                                                                         --------

Total partners' deficit                                                                                   (35,749)
                                                                                                         --------
Total liabilities and partners' deficit                                                                  $114,901
                                                                                                         ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       29
<PAGE>


                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
             STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION
                               (LIQUIDATION BASIS)
                                 (IN THOUSANDS)


                                                                  Period from
                                                              September 30, 2003
                                                                    through
                                                               December 31, 2003
                                                              ------------------
Net Liabilities in Liquidation as of  September 30, 2003            $41,495
Operating Loss                                                        3,165
Changes in net assets in liquidation:
         Decrease in fair value of real estate                       25,554
           Decrease in inventory value                                  920
                                                                    -------

Net Liabilities in Liquidation as of  December 31, 2003             $71,134
                                                                    =======
























   The accompanying notes are an integral part of these financial statements.


                                       30
<PAGE>


                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
                 STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)
                (in thousands, except Unit and per Unit amounts)

<TABLE>
<CAPTION>
                                               Period January 1
                                                    through
                                                 September 30,    Years Ended December 31,
                                               ----------------   ------------------------
<S>                                              <C>               <C>        <C>
                                                     2003            2002        2001
                                                   --------        --------    --------
REVENUES
Rooms                                              $ 55,288        $ 76,727    $ 81,540
Other                                                   616           2,070       2,325
                                                   --------        --------    --------

Total revenues                                       55,904          78,797      83,865
                                                   --------        --------    --------

OPERATING EXPENSES
Rooms                                                18,879          25,277      26,373
Other department costs and expenses                     877           1,481       1,844
Selling, administrative and other                    19,126          25,799      27,135
                                                   --------        --------    --------

Total property-level costs and expenses              38,882          52,557      55,352

Depreciation                                          8,041           9,465      11,647
Property taxes                                        2,474           3,480       4,048
Fairfield Inn system fee                               --              --         2,409
Ground rent                                           2,512           2,607       2,665
Base management fee                                   1,696           2,404       1,712
Insurance and other                                   2,324           3,009       4,077
Termination of management agreement (Note 8)           --              --        (2,349)
Loss on impairment of long-lived assets (Note 2)     15,326           5,278       3,808
                                                   --------        --------    --------

Total operating expenses                             71,255          78,800      83,369
                                                   --------        --------    --------

OPERATING (LOSS) PROFIT                             (15,351)             (3)        496
Interest expense                                     (8,856)        (12,315)    (12,845)
Interest income                                          46             223         727
Gain on disposition of properties (Note 4)             --             3,547        --
Other income                                           --              --           150
                                                   --------        --------    --------

NET LOSS                                           $(24,161)       $ (8,548)   $(11,472)
                                                   ========        ========    ========

ALLOCATION OF NET LOSS
General Partner                                    $   (241)       $    (85)   $   (115)
Limited Partners                                    (23,920)         (8,463)    (11,357)
                                                   --------        --------    --------
                                                   $(24,161)       $ (8,548)   $(11,472)
                                                   ========        ========    ========

NET LOSS PER LIMITED PARTNER UNIT
(83,337 UNITS)                                     $   (287)       $   (102)   $   (136)
                                                   ========        ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       31
<PAGE>


                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

                   STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
                              (GOING CONCERN BASIS)
            For the period January 1, 2003 to September 30, 2003 and
                 For the years ended December 31, 2002 and 2001
                                 (in thousands)

<TABLE>
<CAPTION>
                                             General     Limited
                                             Partner     Partners      Total
                                             --------    --------    --------
<S>                                          <C>         <C>         <C>
Balance, December 31, 2000                   $    (83)   $(13,246)   $(13,329)
Net loss                                         (115)    (11,357)    (11,472)
                                             --------    --------    --------

Balance, December 31, 2001                       (198)    (24,603)    (24,801)
Distribution to partners                          (24)     (2,376)     (2,400)
Net loss                                          (85)     (8,463)     (8,548)
                                             --------    --------    --------

Balance, December 31, 2002                       (307)    (35,442)    (35,749)
Net loss                                         (241)    (23,920)    (24,161)
                                             --------    --------    --------

Balance, September 30, 2003                  $   (548)   $(59,362)   $(59,910)
                                             ========    ========    ========
</TABLE>































   The accompanying notes are an integral part of these financial statements.



                                       32
<PAGE>

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
                 STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                  Period from
                                                                                   January 1
                                                                                    through
                                                                                 September 30,     Years Ended December 31,
                                                                                 -------------  -----------------------------
                                                                                     2003           2002              2001
                                                                                     ----           ----              ----
<S>                                                                                    <C>            <C>               <C>
OPERATING ACTIVITIES
Net loss                                                                          $(24,161)       $(8,548)         $(11,472)
Gain on disposition of properties                                                        --        (3,547)                --
Depreciation                                                                          8,041          9,465            11,647
Amortization of deferred ground rent                                                     --           (23)                --
Amortization of deferred financing costs as interest expense                            351            576               486
Amortization of mortgage debt premium                                                 (137)          (350)             (350)
Loss on impairment of long-lived assets                                              15,326          5,278             3,808
Termination of management agreement                                                      --             --           (2,849)
Changes in operating accounts:
         Due to/from Marriott International, Inc. and affiliates                      1,175          2,554             2,636
         Receivables and other current assets                                           266          1,365           (2,069)
         Accounts payable and accrued liabilities                                     4,030        (1,619)               749
         Change in restricted reserves                                                (486)          1,327             1,518
                                                                                ------------    -----------    --------------

Cash provided by operations                                                           4,405          6,478             4,104
                                                                                ------------    -----------    --------------

INVESTING ACTIVITIES
Additions to property and equipment                                                 (4,288)        (4,155)           (9,190)
Proceeds from sale of properties                                                         --         10,395                --
Change in property improvement fund                                                     739          2,435               269
                                                                                ------------    -----------    --------------

Cash (used in) provided by investing activities                                     (3,549)          8,675           (8,921)
                                                                                ------------    -----------    --------------

FINANCING ACTIVITIES
Repayment of mortgage debt                                                               --       (11,430)           (4,369)
Distribution to partners                                                                 --        (2,400)                --
Payment of ground lease buy-out                                                          --        (2,606)                --
Change in restricted cash                                                           (1,779)          1,792             3,081
                                                                                ------------    -----------    --------------

Cash used in financing activities                                                   (1,779)       (14,644)           (1,288)
                                                                                ------------    -----------    --------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                      (923)            509           (6,105)

CASH AND CASH EQUIVALENTS at beginning of  period                                     5,900          5,391             7,702
CASH OF THE INNS (Note 9), as restated                                                   --             --             3,794
                                                                                ------------    -----------    --------------
CASH AND CASH EQUIVALENTS at end of period                                          $ 4,977        $ 5,900           $ 5,391
                                                                                ============    ===========    ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         Cash paid for mortgage interest                                             $4,666        $11,185          $ 12,730
                                                                                ============    ===========    ==============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       33
<PAGE>

NOTE 1. THE PARTNERSHIP

Description of the Partnership

         Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed on August 23, 1989, to acquire, own and
operate 50 Fairfield Inn by Marriott properties (the "Inns"), which compete in
the economy segment of the lodging industry. Effective August 16, 2001,
AP-Fairfield GP LLC, a Delaware limited liability company, became the general
partner of the Partnership. During the year ended December 31, 2002, the
Partnership sold four of its Inns, two of which leased underlying land from
Marriott International, Inc. ("MII").

         On December 5, 2003 as a result of the agreement reached between the
Partnership, its lender and MII, the Partnership adopted the liquidation basis
of accounting for all periods beginning after September 30, 2003 and accordingly
adjusted the assets to estimated net realizable value and liabilities were
adjusted to estimated settlement amounts, including estimated costs associated
with carrying out the liquidation (see below).

         As of December 31, 2003, the Partnership leased the land underlying 30
of the Inns from MII and certain of its affiliates (the "Ground Leases"). Of the
Partnership's 46 Inns, six are located in each of Georgia, North Carolina and
Michigan; four in each of Florida and Ohio; and three or less in each of
Alabama, California, Illinois, Indiana, Iowa, Kansas, Missouri, South Carolina,
Tennessee, Virginia and Wisconsin (see Note 14). Effective November 30, 2001,
Sage Management Resources III, LLC ("Sage" or "New Manager"), an affiliate of
Sage Hospitality Resources, LLC, began providing management at the properties.
See "Restructuring Plan" below. Prior to such date the Inns were managed by
Fairfield FMC Corporation (the "Former Manager"), a wholly-owned subsidiary of
MII, as part of the Fairfield Inn by Marriott hotel system under a long-term
management agreement. Under Sage, the Inns continue to be operated under the
Fairfield Inn by Marriott system.

         Inn operations commenced on July 31, 1990 after 83,337 limited
partnership interests (the "Units") were sold in a public offering for $1,000
per Unit. Marriott FIBM One Corporation ("FIBM One") contributed $841,788 for a
1% general partnership interest and $1.1 million to establish the initial
working capital reserve of the Partnership at $1.5 million. In addition, FIBM
One had a 10% limited partnership interest in the Partnership while the
remaining 90% of the limited partnership interest is owned by outside parties.

Restructuring Plan and Plan of Liquidation

Restructuring Plan

         As a result of the Partnership's continued decline in operating
results, the prior general partner, FIBM One, developed a restructuring plan for
the Partnership. In connection with this plan, the consent of limited partners
of the Partnership was sought for the transfer by FIBM One of its general
partner interest in the Partnership to the current general partner. Effective
August 16, 2001, following the receipt of the necessary consent to the transfer
of the general partner interest, FIBM One transferred its general partner
interest in the Partnership to AP-Fairfield GP LLC, which is affiliated with
Apollo Real Estate Advisors, L.P. and Winthrop Financial Associates.

         On November 30, 2001, the Restructuring Plan was implemented as the
Partnership (i) replaced MII as the property manager at the Partnership's
properties with Sage Management, (ii) entered into new Franchise Agreements with
MII, (iii) entered into modifications of the Ground Leases which provided for
substantially reduced rent for the year 2002, and an extension of the term to
November 30, 2098, (iv) agreed to complete the property improvement plans
("PIPs") required by MII at the properties by no later than November 30, 2003
and (v) MII waived its right to receive the deferred fees then owing to it.

         Also, as part of the Restructuring Plan, the Partnership filed a Form
S-1 Registration Statement, in which the Partnership sought to offer its limited
partners the right to purchase $23 million in subordinated notes due in 2007
(the "Offering"). The proceeds of the Offering were to have been used for
capital improvements at the Inns. However, due to the Partnership's ongoing
financial difficulties, and in light of the continued decline in operations, it
was determined not to make the Offering and the Registration Statement was
withdrawn on January 6, 2003.

                                       34
<PAGE>

         Pursuant to the terms of the management agreement with Sage, which
agreement has a term of five years subject to early termination, the Partnership
is required to pay Sage a management fee equal to 3% of adjusted gross revenues
at the Partnership's properties. In addition, Sage is entitled to an annual
incentive management fee equal to 10% of the excess earnings before interest,
taxes, depreciation and amortization of the Partnership in excess of $25 million
during the first three years. If the Partnership's earnings before interest,
taxes, depreciation and amortization is not at least $25 million for the 2004
calendar year (subject to certain exceptions), the Partnership has the right to
terminate Sage. See "The Fairfield Inn by Marriott System" below.

         The new Franchise Agreements were substantially similar to the prior
agreements with MII as they relate to the use of the "Fairfield Inn by Marriott"
flag except that it was an event of default under the ground lease if the PIPs
were not completed by November 30, 2003. The PIPs were not completed by November
30, 2003. The Partnership's default under the Franchise Agreement also
constituted a default under the ground lease and the loan encumbering the
Partnership's properties. The Franchise Agreements permit the Inns to be
operated as "Fairfield Inns by Marriott." See "The Fairfield Inn by Marriott
System" below.

         In addition, as a result of the Partnership's declining operations, the
Partnership has failed to meet its debt service payments on its loan encumbering
its properties since November 11, 2002. On March 26, 2003, the Partnership
received notice from MII as the ground lessor with respect to 30 of the Inns
that it was in default under the Ground Leases, due to its failure to pay the
full amount due of minimum rentals owed under the Ground Leases beginning in
January 2003. On May 9, 2003, the lender exercised its right to cure the default
and paid the non-subordinated ground rent owed under the Ground Leases through
March 2003. On behalf of the Partnership, the lender has continued to pay the
non-subordinated ground rent under the Ground Leases through December 2003.

Plan of Liquidation

         As a result of these defaults, the Partnership engaged in discussions
with its lender as well as MII to seek a further restructuring of the
Partnership's debt and ground lease. Effective December 5, 2003, the Partnership
entered into an agreement with its lender and MII which provides that the lender
and MII will forbear in the exercise of their remedies under the relevant
documents due to the then existing defaults, including the non-payment of debt
service and ground rent and the failure to complete required MII PIPs on a
timely basis, all due to a lack of operating revenues, and to implement a
liquidation of the Partnership's Inns. In exchange for the agreement to
liquidate, the lender has agreed to pay the Partnership: (i) $65,217 per Inn
sold, payable upon the sale of each Inn, and (ii) an additional amount equal to
10% of the aggregate net sale proceeds from the sale of all Inns in excess of a
graduated incentive fee base, plus any additional amounts the lender advances in
connection with the liquidation process. At present, it is not expected that the
Inns will generate gross sales proceeds in excess of the threshold amount. It is
anticipated that the lender will advance funds to: (a) permit capital
improvements to be conducted at the Inns, which is required by MII, and will
also increase the marketability of the Inns for sale, and (b) fund operating
expenses, including payment of real estate taxes, as a result of insufficient
operating revenue. In the event all the Inns are not sold by April 1, 2005, the
Partnership has agreed to allow the lender to exercise its rights under the loan
documents, which may include foreclosure, without interference from the
Partnership. Accordingly, if all of the Inns are not sold by April 1, 2005, it
is likely that the remaining Inns will be lost to the lender through
foreclosure.

In connection with the agreement, an affiliate of MII, as ground lessor, agreed
to waive up to $1.2 million of ground rent for a period of up to one year, and
any additional ground rent due in excess of $1.2 million will be deferred until
the earlier of: (i) the sale of an Inn, or (ii) April 1, 2005; provided, however
that in the event a default arises under the agreements reached with MII at any
time, all ground rent shall become immediately due and payable. MII, as
franchisor, has agreed that for those Inns that will remain in the Fairfield Inn
by Marriott system, the property improvement plans are not required to be
completed until April 1, 2005, however the work must be commenced by September
1, 2004, and has also agreed to waive any liquidated damages that otherwise may
be due to MII arising from the early termination of a franchise agreement due to
the sale of an Inn through September 1, 2004, and thereafter reduced the amount
to $25,000 per property for Inns sold between September 1, 2004 and November 30,
2004. In exchange for these ground rent and franchise termination fee
concessions, the Partnership has agreed to remove 12 of the Inns, as identified
by MII, from the Fairfield Inn by Marriott system no later than September 1,
2004 and keep six of the Inns, as identified by MII, in the Fairfield Inn by
Marriott system. The remaining Inns can be sold either as a Fairfield Inn by
Marriott or without the

                                       35
<PAGE>


franchise agreement. In the event PIPs are not completed by April 1, 2005 for
any Inn not sold, it will result in a default under the MII agreements and
permit MII to terminate the franchise agreements. Further, upon the termination
of any franchise agreement, the Partnership must purchase MII's interest under
all Ground Leases.

On November 20, 2003, the Partnership engaged a nationally recognized broker to
begin marketing the Inns for sale. It is expected that the Partnership will, in
all likelihood, be dissolved in 2005, either upon the sale of all Inns or as a
result of the foreclosure by the lender of any remaining Inns not otherwise
sold.

Partnership Allocations and Distributions

Partnership allocations and distributions are generally made as follows:

a. Cash available for distribution for each fiscal year will be distributed
quarterly as follows: (i) 99% to the limited partners and 1% to the General
Partner (collectively, the "Partners") until the Partners have received, with
respect to such fiscal year, an amount equal to the Partners' Preferred
Distribution (10% of the excess of original cash contributions over cumulative
distributions of net refinancing and sales proceeds ("Capital Receipts") on an
annualized basis); and (ii) remaining cash available for distribution will be
distributed as follows, depending on the amount of Capital Receipts previously
distributed:

(1) 99% to the limited partners and 1% to the General Partner, if the Partners
have received aggregate cumulative distributions of Capital Receipts of less
than 50% of their original capital contributions; or

(2) 90% to the limited partners and 10% to the General Partner, if the Partners
have received aggregate cumulative distributions of Capital Receipts equal to or
greater than 50% but less than 100% of their original capital contributions; or

(3) 80% to the limited partners and 20% to the General Partner, if the Partners
have received aggregate cumulative distributions of Capital Receipts equal to
100% or more of their original capital contributions.

b. Refinancing proceeds and sale proceeds from the sale or other disposition of
less than substantially all of the assets of the Partnership will be distributed
(i) 99% to the limited partners and 1% to the General Partner until the Partners
have received the then outstanding Partners' 12% Preferred Distribution, as
defined, and cumulative distributions of Capital Receipts equal to 100% of their
original capital contributions; and (ii) thereafter, 80% to the limited partners
and 20% to the General Partner.

c. Sale proceeds from the sale of substantially all of the assets of the
Partnership will be distributed to the Partners pro-rata in accordance with
their capital account balances as adjusted to take into account gain or loss
resulting from such sale.

d. Net profits for each fiscal year generally will be allocated in the same
manner in which cash available for distribution is distributed. Net losses for
each fiscal year generally will be allocated 99% to the limited partners and 1%
to the General Partner.

e. Gains recognized by the Partnership generally will be allocated in the
following order of priority: (i) to those Partners whose capital accounts have
negative balances until such negative balances are brought to zero; (ii) to all
Partners up to the amount necessary to bring the Partners' capital account
balances to an amount equal to their pro-rata share of the Partners' 12%
Preferred Distribution, as defined, plus their Net Invested Capital, as defined;
and (iii) thereafter, 80% to the limited partners and 20% to the General
Partner.

f. For financial reporting purposes, profits and losses are allocated among the
Partners based on their stated interests in cash available for distribution.

                                       36
<PAGE>

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

Due to the agreement reached between the Partnership, its lender and MII on
December 5, 2003, the Partnership adopted the liquidation basis of accounting
for all periods beginning after September 30, 2003. In accordance with the
liquidation basis of accounting, the Partnership adjusted its assets to their
estimated net realizable value and liabilities were adjusted to estimated
settlement amounts, including estimated costs associated with carrying out the
liquidation. The valuation of real estate held for sale is based on current
contracts, estimates and other indication of sales value net of estimated
selling costs (including brokerage commissions, transfer taxes, legal costs).
Actual values realized for assets and settlements of liabilities may differ
materially from the amounts estimated. However, in accordance with FASB No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities", the non-recourse mortgage debt and related mortgage premium
were not adjusted to its estimated settlement amount as the Partnership has not
been legally released from being the primary obligor under the mortgage debt.
Accordingly, the outstanding mortgage balance and accrued and unpaid interest
will continue to be presented at its historical basis.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

Prior to the adoption of the liquidation basis of accounting, revenue was
generally recognized as services were performed.

Property and Equipment

Prior to the adoption of the liquidation basis of accounting, property and
equipment was recorded at cost. Depreciation was computed using the
straight-line method over the estimated useful lives of the assets, which is
generally 30 years for building, leasehold and land improvements, and 4 to 10
years for furniture and equipment. All property and equipment is pledged as
security for the mortgage debt.

The Partnership assessed impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties was
expected to be less than their net book value. If a property was impaired, its
basis was adjusted to its estimated fair value. The Partnership recorded an
impairment charge of $15.3 million, $5.3 million, and $3.8 million for the nine
months ended September 30, 2003 and for the years ended December 31, 2002 and
2001, respectively.

Deferred Financing Costs

Upon the adoption of the liquidation basis of accounting, deferred financing
costs of $1.5 million were written off to reflect the balances at their net
realizable value.

Restricted Cash

The Partnership was required to establish certain reserves pursuant to the terms
of the mortgage debt (see Note 6).

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.

                                       37
<PAGE>


Real Estate Held for Sale and Adjustment to Liquidation Basis of Accounting

         As a result of the agreement reached between the Partnership, its
lender and MII, the Partnership adopted the liquidation basis of accounting and
accordingly adjusted the assets to estimated net realizable value, and
liabilities were adjusted to estimated settlement amounts, including estimated
costs associated with carrying out the liquidation. The valuation of real estate
held for sale is based on current contracts, estimates and other indications of
sales value net of estimated selling costs (including brokerage commissions,
transfer taxes, legal costs). Additionally, the Partnership suspended recording
any further depreciation expense.

The actual values realized for assets and settlement of liabilities may differ
materially from amounts estimated. Significant differences may occur based upon
local economic market conditions which have resulted in weaker 2004 operating
results at some of the hotels.

Reserve for Estimated Costs during the Period of Liquidation

         Under the liquidation basis of accounting, the Partnership is required
to estimate and accrue the non-operating costs associated with executing the
plan of liquidation. These amounts can vary significantly due to, among other
things, the timing and realized proceeds from property sales, the costs of
retaining agents and trustees to oversee the liquidation, including the costs of
insurance, the timing and amounts associated with discharging known and
contingent liabilities and the non-operating costs associated with cessation of
the Partnership's operations. These non-operating costs are estimates and are
expected to be paid out over the liquidation period. Such costs do not include
costs incurred in connection with ordinary operations.

Ground Rent

         Certain Inns are subject to Ground Leases with MII that provide for
annual minimum rents. Initially, the Ground Leases included scheduled increases
in minimum rents per property. These scheduled rent increases, which were
included in minimum lease payments, were recognized by the Partnership on a
straight-line basis over the first ten years of the leases. As of year end 2000,
all deferred straight-line ground rent had been recognized. For the remaining
life of the leases, the minimum rentals were to be adjusted every five years
based on changes in the Consumer Price Index, and prior to the adoption of
liquidation basis accounting, were expensed as incurred.

         Upon modification of the ground lease with MII effective November 30,
2001, ground rent of $2.2 million was forgiven and minimum rentals for 2002 were
reduced to $100,000. The excess of ground rent expense recognized over the 2002
rental payments of $100,000 required by the lease agreement of $2.5 million was
deferred at December 31, 2002. Prior to the adoption to the liquidation basis of
accounting, these amounts were amortized on a straight line basis over the terms
of the ground lease.

         Upon the adoption of the liquidation basis of accounting, subordinated
unpaid ground rent of $2.7 million was written off to reflect the balance at its
net realizable value.

         On March 26, 2003, the Partnership received notice from MII that it was
in default under the ground lease agreements due to its failure to pay the full
amount due of minimum rentals owed under the Ground Leases beginning in January
2003. On May 7, 2003, the Partnership received notice from MII that the Ground
Leases would be terminated effective June 15, 2003 for nonpayment. On May 9,
2003, the lender exercised its right to cure the default and paid the
non-subordinated ground rent owed under the Ground Leases through March 2003. On
behalf of the Partnership, the lender has continued to pay the non-subordinated
ground rent under the Ground Leases through December 2003. The Partnership has
recognized the obligation to repay the lender for these advances.

Income Taxes

         Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather, allocates profits and losses to the individual Partners.
Significant

                                       38
<PAGE>

differences exist between the net loss for financial reporting purposes and the
net loss as reported in the Partnership's tax return.

Recently Issued Accounting Standards

         Financial Accounting Standards Board ("FASB") SFAS No. 144 "Accounting
for Impairment or Disposal of Long-Lived Assets" supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard provides guidance beyond that previously specified
in Statement 121 to determine when a long-lived asset should be classified as
held for sale, among other things. This Statement was adopted by the Partnership
effective January 1, 2002. Implementation of the statement did not have a
material effect on the Partnership.

         SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of SFAS No. 13 and Technical Corrections," updates, clarifies and
simplifies existing accounting pronouncements. In part, this statement rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." SFAS No.
145 will be effective for fiscal years beginning after May 15, 2002. Upon
adoption, enterprises must reclassify prior period items that do not meet the
extraordinary item classification criteria in APB Opinion No. 30. This statement
had no effect on the Partnership's financial statements.

         SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing
or other exit or disposal activity. SFAS No. 146 is effective prospectively for
exit and disposal activities initiated after December 31, 2002, with earlier
adoption encouraged. This statement had no effect on the Partnership's financial
statements.

         FASB Interpretation No. 45, "Guarantors' Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. The disclosure provisions of this
Interpretation are effective for the Partnership's December 31, 2002 financial
statements. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. This Interpretation had no effect on the
Partnership's financial statements.

         FASB issued Interpretation No. 46, "Consolidation of Variable Interest
Entities". This interpretation clarifies the application of existing accounting
pronouncements to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do have sufficient equity
at risk for the entity to finance its activities without additional subordinated
financial support from other parties. In December 2003, FASB issued a revision
to Interpretation No. 46 ("46R") to clarify some of the provisions of
Interpretation No. 46, and exempt to certain entities from its requirements. The
provisions of the interpretation need to be applied no later than December 31,
2004, except for entities that are considered to be special-purpose entities
which need to be applied as of December 31, 2003. This interpretation had no
effect on the Partnership's financial statements.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial reporting and accounting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
changes in the statement improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. In particular, this
statement (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative discussed in SFAS No. 133,
(2) clarifies when a derivative contains a financing component, (3) amends the
definition of an Underlying to conform it to language used in FASB
Interpretation No. 45 and (4) amends certain other existing pronouncements.
Those changes will result in more consistent reporting of contracts either as
derivatives or hybrid instruments. This statement is effective for contracts
entered into or modified after June
                                       39
<PAGE>


30, 2003, and for hedging relationships designated after June 30, 2003. The
guidance should be applied prospectively. The provisions of this statement that
relate to SFAS No. 133 implementation issues that have been effective for fiscal
quarters that began prior to June 15, 2003, should continue to be applied in
accordance with their respective effective dates. In addition, certain
provisions relating to forward purchases or sales of when-issued securities or
other securities that do not yet exist, should be applied to existing contracts
as well as contracts entered into after June 30, 2003. This statement has no
effect on the Partnership's financial statements.

         In May 2003, the issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The statement
improves the accounting for certain financial instruments that under pervious
guidance, issuers could account for as equity. The new statement requires that
those instruments be classified as liabilities in statements of financial
position. SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash and
other assets. A second type, which includes put options and forward purchase
contracts, involves instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets. The third type of
instruments that are liabilities under this statement is obligations that can be
settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such a market index, or varies inversely with the
value of the issuers' shares. SFAS No. 150 does not apply to features embedded
in a financial instrument that is not a derivative of the entirety. In addition
to its requirements for the classification and measurement of financial
instruments in its scope, SFAS No. 150 also requires disclosures about
alternative ways of settling the instruments and the capital structures of all
entities, all of whose shares are mandatorily redeemable. Most of the guidance
in SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003 and otherwise was effective at the beginning of the
first interim period beginning after June 15, 2003. This statement has no effect
on the Partnership's financial statements.


NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2002 (in
thousands):

   Land and improvements                                          $ 13,425
   Building and leasehold improvements                             154,198
   Furniture and equipment                                          66,466
   Construction in progress
                                                                     3,002
                                                                   237,091

   Less accumulated depreciation and amortization                 (137,465)
                                                                  --------
                                                                  $ 99,626
                                                                  ========


NOTE 4.  REAL ESTATE HELD FOR SALE

The following table is a summary of the Partnership's real estate held for sale
(in thousands):

                                                            December 31,
                                                            ------------
                                                      2003              2002
                                                      ----              ----

Real Estate Held for Sale                           $124,972           $1,122
                                                    ========           ======



As of December 31, 2003 the Partnership owned 46 Inns located in 16 states (see
Note 14).

No properties were sold during 2003.


                                       40
<PAGE>

On July 29, 2002, the Partnership sold one of its Inns located in Montgomery,
Alabama (previously classified as property held for sale on the accompanying
balance sheet) for $3.1 million. The net proceeds from the sale of approximately
$2.9 million were applied toward the Partnership's mortgage debt, in accordance
with the terms of the loan agreement. The Partnership recognized a gain on the
sale of approximately $2.1 million.

On August 12, 2002, the Partnership sold its Inn located in Charlotte, North
Carolina (classified as property held for sale on the accompanying balance
sheet) for $2.5 million. The net proceeds from the sale of approximately
$300,000, which is net of approximately $1.9 million attributed to the ground
lease buyout, were applied toward the Partnership's mortgage debt, in accordance
with the terms of the loan agreement. The Partnership recognized a gain on the
sale of approximately $200,000.

On August 14, 2002, the Partnership sold its Inn located in Atlanta, Georgia
(classified as property held for sale on the accompanying balance sheet) for
$3.0 million. The net proceeds from the sale of approximately $2.8 million were
applied toward the Partnership's mortgage debt, in accordance with the terms of
the loan agreement. The Partnership recognized a gain on the sale of
approximately $200,000.

On October 9, 2002, the Partnership sold its Inn located in Chicago, Illinois
(classified as property held for sale on the accompanying balance sheet) for
$2.3 million. The net proceeds from the sale of approximately $1.4 million,
which is net of approximately $700,000 attributed to the ground lease buyout,
were applied toward the Partnership's mortgage debt, in accordance with the
terms of the loan agreement. The Partnership recognized a gain on the sale of
approximately $1.1 million.

On November 20, 2003, the Partnership engaged a nationally recognized broker to
begin marketing the Inns for sale. It is expected that the Partnership will, in
all likelihood, be dissolved in 2005, either upon the sale of all Inns or as a
result of the foreclosure by the lender of any remaining Inns not otherwise
sold.


NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership is currently in default under its mortgage loan agreement.
Therefore, the fair value of the Partnership's mortgage debt cannot be
reasonably estimated due to uncertainties related to ongoing operations. The
fair value of the Partnership's cash and cash equivalents, restricted cash,
property improvement fund, accounts receivable, and accounts payable equals
carrying value as presented in the accompanying balance sheets.

NOTE 6. DEBT

As of November 11, 2002, the Partnership is in default under the mortgage loan
agreement due to its failure to pay the regularly scheduled debt service payment
due on that date. In 1997, the Partnership's mortgage debt was refinanced and
increased to $165.4 million. The mortgage debt is non-recourse, bears interest
at a fixed rate of 8.40% and required monthly payments of $1.4 million of
principal and interest based upon a 20-year amortization schedule for a 10-year
term which was scheduled to expire January 11, 2007. Thereafter, until the final
scheduled maturity date of January 11, 2017, interest was to be payable at an
adjusted rate, and all excess cash flow was to be applied toward principal
amortization. The lender securitized the loan through the issuance and sale of
commercial mortgage backed securities.

In connection with the December 5, 2003 agreement described above, the
Partnership adopted the liquidation basis of accounting for all periods
beginning after September 30, 2003. In accordance with the liquidation basis of
accounting, assets were adjusted to estimated net realizable value and
liabilities were adjusted to estimated settlement amounts, including estimated
costs associated with carrying out the liquidation. However, in accordance with
FASB No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", the non-recourse mortgage debt and related
mortgage premium were not adjusted to its estimated settlement amount as the
Partnership has not been legally released from being the primary obligor under
the mortgage debt. Accordingly, the outstanding mortgage balance and accrued and
unpaid interest will continue to be presented at its historical basis.

In exchange for the agreement to liquidate, the lender has agreed to pay the
Partnership: (i) $65,217 per Inn sold, payable

                                       41
<PAGE>

upon the sale of each Inn, and (ii) an additional amount equal to 10% of the
aggregate net sale proceeds from the sale of all Inns in excess of a graduated
incentive fee base, plus any additional amounts the lender advances in
connection with the liquidation process. At present, based upon management's
estimates, the sale of the Inns will not generate gross sales proceeds in excess
of the threshold amount. It is anticipated that the lender will advance funds
to: (a) permit capital improvements to be conducted at the Inns, which is
required by MII, and will also increase the marketability of the Inns for sale,
and (b) fund operating expenses, including payment of real estate taxes, as a
result of insufficient operating revenue. In the event all the Inns are not sold
by April 1, 2005, the Partnership has agreed to allow the lender to exercise its
rights under the loan documents, which may include foreclosure, without
interference from the Partnership.

The mortgage premium of $3.5 million is being amortized based on a 20-year
amortization schedule for a 10-year term, subject to adjustments for Inn sales,
expiring January 11, 2007. Accumulated amortization of the mortgage premium at
December 31, 2003 and 2002 was $2.3 million and $2.1 million, respectively,
resulting in an unamortized balance of $1.2 million and $1.4 million,
respectively.

The mortgage debt is secured by first mortgages on all of the Inns, the land on
which they are located, or an assignment of the Partnership's interest under the
Ground Leases, including ownership interest in all improvements thereon,
fixtures and personal property related thereto.

Reserves

The Partnership was required by the lender to establish various reserves for
capital expenditures, working capital, debt service and insurance needs.

The balances in those reserves as of December 31 are as follows (in thousands):

                                                           2003     2002
                                                           ----     ----

       Taxes and insurance reserve                       $1,517       $-
       Ground rent reserve                                  253        8
                                                         ------      ---
       Total restricted cash                             $1,770      $ 8
                                                         ======      ===



                                       42
<PAGE>


NOTE 7. GROUND LEASES

The land on which 30 of the Inns are located is leased from MII or its
affiliates. The Ground Leases, prior to the amendment discussed below, expired
on November 30, 2088 and provided that, other than in 2002, the Partnership
would pay annual rents equal to the greater of a specified minimum rent for each
property or a percentage rent based on gross revenues of the Inn operated
thereon. The minimum rentals were adjusted at various anniversary dates through
2000, as defined in the agreements. The minimum rentals were adjusted every five
years for the remaining life of the leases based on changes in the Consumer
Price Index. The percentage rent, which also varied from property to property,
was fixed at predetermined percentages of gross revenues that increase over
time.

On March 26, 2003, the Partnership received notice from MII that it was in
default under the Ground Leases due to its failure to pay the full amount due of
minimum rentals owed under the Ground Leases beginning in January 2003. On May
7, 2003, the Partnership received notice from MII that the Ground Leases would
be terminated effective June 15, 2003 for nonpayment. On May 9, 2003, the lender
exercised its right to cure the default and paid the non-subordinated ground
rent owed under the Ground Leases through March 2003. On behalf of the
Partnership, the lender has continued to pay the non-subordinated ground rent
under the Ground Leases through December 2003. The Partnership has recognized
the obligation to repay the lender for these advances.

In connection with the December 5, 2003 agreement described above, an affiliate
of MII, as ground lessor, agreed to waive up to $1.2 million of ground rent for
a period of up to one year, and any additional ground rent due in excess of $1.2
million will be deferred until the earlier of: (i) the sale of an Inn, or (ii)
April 1, 2005; provided, however that in the event a default arises under the
agreements reached with MII at any time, all ground rent shall become
immediately due and payable.

Total rental expense on the Ground Leases was $2.5 million, $2.6 million, and
$2.7 million for the period January 1 through September 30, 2003 and the years
ended December 31, 2002 and 2001, respectively.

Under the Ground Leases, the Partnership pays all costs, expenses, taxes and
assessments relating to the Inns and the underlying land, including real estate
taxes. The Ground Leases provide that the Partnership has a first right of
refusal in the event the applicable ground lessor decides to sell the leased
premises. Upon expiration or termination of the Ground Leases, title to the
applicable Inn and all improvements reverts to the ground lessor.

NOTE 8. FORMER MANAGEMENT AGREEMENT

Through November 30, 2001, the Partnership was a party to a long-term management
agreement (the "Management Agreement") with the Former Manager. This agreement
was terminated and Sage Management Resources III, LLC ("Sage"), an affiliate of
Sage Hospitality Resources, LLC, was retained as the New Manager effective
November 30, 2001. See discussion of new management agreement below.

The Former Manager was required to furnish certain services ("Chain Services")
which are furnished generally on a central or regional basis to all managed or
owned Inns in the Fairfield Inn by Marriott hotel system. Costs and expenses
incurred in providing such services were allocated among all domestic Fairfield
Inn by Marriott hotels managed, owned or leased by MII or its subsidiaries,
based upon one or a combination of the following: (i) percent of revenues, (ii)
total number of hotel rooms, (iii) total number of reservations booked, and (iv)
total number of management employees. The Inns also participated in MII's
Marriott Rewards Program ("MRP"). The cost of this program was charged to all
hotels in the full-service, Residence Inn by Marriott, Courtyard by Marriott and
Fairfield Inn by Marriott systems based upon the MRP revenues at each hotel. The
total amount of chain services and MRP costs allocated to the Partnership for
the period January 1 through September 30, 2003 and the year ended December 31,
2002 was $3.6million and $5.0 million, respectively. In addition, MII maintains
a marketing fund to pay the costs associated with certain system-wide
advertising, marketing, sales, promotional and public relations materials and
programs. Each Inn within the system contributes approximately 2.5% (for 2003and
2002) and 2.4% (for 2001 and prior) of gross Inn revenues to the marketing fund.
For the nine months ended September 30, 2003 and the years ended December 31,
2002 and 2001, the Partnership contributed $1.4 million, $1.9 million and $1.9
million, respectively, to the marketing fund.

                                       43
<PAGE>

Pursuant to the terms of the Management Agreement, the Partnership was required
to provide the Former Manager with working capital and supplies to meet the
operating needs of the Inns. The Former Manager converted cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which were
maintained and controlled by the Former Manager. This advance earned no interest
and remained the property of the Partnership throughout the term of the
Management Agreement. The Partnership was required to advance upon request of
the Former Manager any additional funds necessary to satisfy the needs of the
Inns as their operations required from time to time. Upon termination of the
Management Agreement, the Former Manager returned to the Partnership all unused
working capital and supplies. At the inception of the Partnership, $1 million
was advanced to the Former Manager for working capital and supplies which was
included in Due from Marriott International, Inc. and affiliates. Effective with
the termination of the Management Agreement, the working capital was turned over
to the new manager and represents inventory.

NOTE 9. NEW MANAGEMENT AGREEMENT

Effective November 30, 2001, the Partnership retained Sage, an independent hotel
management company, to manage its Inns under separate management agreements for
each Inn.

The management agreements have a term of five years and provide that the Inns
will be operated as part of the Fairfield Inn by Marriott franchise system, and
that Sage will be responsible for the day-to-day operation of the Inns. The
Partnership has the right to terminate a management agreement under certain
circumstances, including a change in control of Sage, the sale of all the Inns
(in which event a termination fee may be payable) or Sage's failure to achieve
certain performance levels during the third year of the agreement, unless such
failure is due to circumstances beyond Sage's control. Sage may terminate a
management agreement under certain circumstances, including the Partnership's
failure to provide sufficient working capital for the operation of an Inn.

Sage receives a base management fee under the management agreements in the
aggregate equal to 3% of adjusted gross revenue, and an incentive management fee
equal to 10% of the excess of earnings before interest, taxes, depreciation and
amortization of all the Inns during the applicable fiscal year ("EBITDA") over
(i) $25 million, to be adjusted if an Inn is no longer managed by Sage (during
the first three years of the management agreements) and (ii) 107.5% of the
greater of (x) $25,000,000 and (y) the prior year's EBITDA (during the last two
years of the management agreements). The right to continue to manage and operate
the Inns shall be subordinate to the mortgage. The incentive management fee
shall be subordinate in payment to the mortgage debt. The total fees and
expenses payable by the Partnership under the new franchise agreements and the
new management agreements, exclusive of the incentive management fee payable to
Sage, will not exceed the amount that was paid to the Former Manager under the
previous management agreement.

During 2001, the Partnership advanced to Sage amounts totaling $868,000 in order
to fund expenses incurred related to Sage's transition as the new manager. The
Partnership and Sage entered into a Promissory Note Agreement ("Note") whereby
these advances would be repaid by Sage on a monthly basis beginning February 1,
2002 in an amount equal to 50% of the previous months management fees until the
Note is paid in full. The advances accrued interest at a rate of 12%. Interest
income on these advances was $49,000 and $23,000 for the years ending December
31, 2002 and 2001, respectively. This Note was paid in full during the year
ended December 31, 2002.

The Partnership is required to establish a reserve account to cover expenditures
for capital improvements and replacement of furniture, fixtures and equipment
for the Inns. Contributions to the account will be made on a monthly basis in an
amount equal to 7% of gross monthly revenues for the Inns. If funds are
insufficient to meet required monthly contributions to the reserve account, the
Partnership is required to provide additional funds.

The Partnership is also required to provide Sage with working capital sufficient
to meet all disbursements and operating expenses necessary to permit the
uninterrupted and efficient operation of the Inns. Sage may request additional
contributions to working capital if any additional funds are necessary to
satisfy the needs of the Inns as their operations may require from time to time.

If the Partnership's earnings before interest, taxes, depreciation, and
amortization is not at least $25 million for the calendar year 2004 (subject to
certain exceptions), the Partnership has the right to terminate Sage.

                                       44
<PAGE>

The Partnership has historically presented the working capital advanced to the
Former Manager in a single line item on the balance sheet. In 2001, the
Partnership presented the working capital advanced to Sage in a single line item
on the balance sheet to be consistent with prior year presentation.

In 2002, the Partnership concluded that the components of the working capital
managed by Sage should be consolidated with the working capital of the
Partnership. Previously reported financial statements have been revised to
reflect this accounting presentation.

This revision did not impact the statement of operations, partners' deficit or
the net operating, investing and financing cash flows, but did affect the
comparability of the components of the operating cash flows for 2002 to 2001 and
2000.

Following is a summary of the working capital components affected by the
revision at December 31, 2001 (in thousands):

                                       Balance Sheet
                                      as previously                Balance Sheet
                                         reported     Adjustments     Revised
                                      --------------  -----------  -------------

Accounts receivable                     $   --          $    598      $    598
Due from Manager                           1,069             400         1,469
Cash                                       1,597           3,794         5,391
Due from Marriott International,
Inc.                                        --               387           387
Prepaid insurance and other
current assets                              --             1,576         1,576
Accounts payable                          (3,660)         (6,755)      (10,415)
                                        --------        --------      --------
                                        $   (994)       $   --        $   (994)
                                        ========        ========      ========

NOTE 10. FRANCHISE AGREEMENTS

Effective November 30, 2001, the Partnership entered into Franchise Agreements
with MII for each Inn, which permitted the Partnership to continue to use the
Fairfield Inn by Marriott brand.

Under the new Franchise Agreements, the Partnership was required to pay the
following fees for each Inn:

         o    a $10,000 non-refundable application fee per inn to cover MII's
              application processing expenses;

         o    a royalty fee of 4% of gross room revenue;

         o    a marketing fund contribution of 2.5% of gross room revenue;

         o    a reservation system fee equal to 1% of gross room revenue, plus
              $3.50 for each reservation confirmed and a communications support
              fee of $379 per month for each inn;

         o    a property management system fee of $323 per month for each inn
              plus an additional $30 per month for each inn to access the
              Marriott intranet site; and

         o    training and software charges.

In addition, the Partnership was required to deposit 7% of each Inn's gross
monthly revenues into an escrow account to be applied towards capital
improvements. Prior to the agreements entered into effective December 5, 2003,
between the Partnership, its lender and MII, the Partnership was in default
under the franchise agreements with MII due to its failure to make its property
improvement fund contributions beginning in September 2002, which also resulted
in technical default under the mortgage loan agreement.

                                       45
<PAGE>

Each new franchise agreement included a termination fee to MII if the franchise
for a particular Inn is terminated. To facilitate a potential sale, the
Partnership was not required to pay the termination fee on five of eight
specified inns if the Inns had been sold within 18 months of the date of the
franchise agreements. Each franchise agreement had a 10-year term. The
Partnership had the option to renew each agreement for two additional five-year
periods subject to its successful maintenance of brand standards and compliance
with all of the material terms of the agreement.

As a condition to entering into the franchise agreements, an affiliate of the
Partnership's general partner had guaranteed the Partnership's obligations to
pay the termination fees under certain circumstances that may come due under the
agreements up to a maximum of $25 million and up to a maximum of $10 million on
the Partnership's other obligations under the agreements.

As described above, in connection with the agreements entered into effective
December 5, 2003, MII, as franchisor, has agreed to the plan of liquidation and
has agreed that for those Inns that will remain in the Fairfield Inn by Marriott
system, the property improvement plans are not required to be completed until
April 1, 2005, however the work must be commenced by September 1, 2004, and has
also agreed to waive any liquidated damages that otherwise may be due to MII
arising from the early termination of a franchise agreement due to the sale of
an Inn through September 1, 2004, and thereafter reduced the amount to $25,000
per property for Inns sold between September 1, 2004 and November 30, 2004. In
exchange for these ground rent and franchise termination fee concessions, the
Partnership has agreed to remove 12 of the Inns, as identified by MII, from the
Fairfield Inn by Marriott system no later than September 1, 2004 and keep six of
the Inns, as identified by MII, in the Fairfield Inn by Marriott system. The
remaining Inns can be sold either as a Fairfield Inn by Marriott or without the
franchise agreement. In the event PIPs are not completed by April 1, 2005 for
any Inn not sold, it will result in a default under the MII agreements, and
permit MII to terminate the franchise agreements. Further, upon the termination
of any franchise agreement, the Partnership must purchase MII's interest under
all Ground Leases.

NOTE 11. TAXABLE LOSS

The Partnership's taxable loss differs from the net loss for financial reporting
purposes for the years ended December 31, 2002 and 2001, as follows (in
thousands):

                                                             2002        2001
                                                           --------    --------

Net loss income for financial reporting purposes           $ (8,548)   $(11,472)
         Gain from property and equipment sales              (6,226)       --
         Depreciation and amortization                            3       1,266
         Impairment charges                                   5,278       3,808
         Incentive fees                                        --        (2,849)
         Ground rent                                          2,532        --
         Difference in capitalized items                        342       1,058
         Other                                                  (29)        151
                                                           --------    --------
Taxable loss                                               $ (6,648)   $ (8,038)
                                                           ========    ========

The Partnership's taxable loss was $12,552,000 for the year ended December 31,
2003.

NOTE 12. RELATED PARTY TRANSACTIONS

The Partnership pays Winthrop Financial Associates ("WFA"), an affiliate of the
general partner, a monthly fee of $30,000 to cover various administrative
services provided on the Partnership's behalf. For the nine months ended
September 30, 2003 and for the years ended December 31, 2002 and 2001, $270,000,
$360,000 and $12,000 were expensed for these services, respectively. For the
year ended December 31, 2003, WFA was paid $360,000.

                                       46
<PAGE>


NOTE 13.  SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

                The following summary represents the results of operations for
each quarter in 2003 and 2002:

                  (In thousands, except units amounts)

                                                  QUARTERS ENDED

<TABLE>
<CAPTION>
                                                   March 31       June 30         September 30     December 31
                                                 -----------     ----------       -----------     ------------
                <S>                              <C>             <C>              <C>             <C>
                2003
                ----

                Revenues                         $    15,806     $   19,644       $    20,454     $          0
                                                 ===========     ==========       ===========     ============
                Net loss                         $   (6,644)(4)  $  (2,671)(5)    $  (14,846)(6)  $          0
                                                 ===========     ==========       ===========     ============
                Net loss per
                  limited partner unit           $      (79)     $     (32)       $     (176)     $          0
                                                 ===========     ==========       ===========     ============

                2002
                ----

                Revenues                         $    18,024     $   23,932       $    21,432      $    15,409
                                                 ===========     ==========       ===========      ===========
                Net income (loss)                $   (2,607)     $    1,252       $   (4,192)(1,3) $   (3,001)(2)
                                                 ===========     ==========       ============     ===========
                Net income (loss) per
                  limited partner unit           $      (31)     $       15       $      (50)      $      (36)
                                                 ===========     ==========       ===========      ===========
</TABLE>

(1)  Includes gain of disposal of real estate of $2.5 million.
(2)  Includes gain of disposal of real estate of $1.0 million.
(3)  Includes loss on impairment of long-lived assets of $5.3 million.
(4)  Includes loss on impairment of long-lived assets of $2.0 million.
(5)  Includes loss on impairment of long-lived assets of $892,000.
(6)  Includes loss on impairment of long-lived assets of $12.5 million.

NOTE 14. SUBSEQUENT EVENTS

On March 24, 2004, the Partnership sold its inn located in Norcross, Georgia for
$1.5 million. After closing costs and the payment to the Partnership of the
$65,217 as agreed to under the liquidation plan, the net proceeds from the sale
of approximately $1.3 million were applied toward the Partnership's mortgage
debt. The Partnership recognized a loss of the sale of $3,000.

On March 25, 2004, the Partnership sold its inns located in Buena Park and
Placentia, California for an aggregate price of $8.75 million. After payment for
the purchase of the ground for $3.6 million, closing costs and the payment to
the Partnership of $130,434, as agreed to under the liquidation plan, the net
proceeds from the sale of approximately $4.5 million were applied toward the
Partnership's mortgage debt. The Partnership recognized a loss of the sale of
$7,000.



                                       47
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

As of the end of the period covered by this annual report on Form 10-K, an
evaluation was carried out under the supervision and with the participation of
the General Partner's management, including the General Partner's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Partnership's disclosure controls and procedures (as such term is defined in
Rule 13a-15 (e) under the Securities Exchange Act of 1934). Based on that
evaluation, the General Partner's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Partnership's
disclosure controls and procedures were effective as of the end of the period
covered by this report. In addition, no change in our internal control over
financial reporting (as defined in Rule 13a- 15 (f) under the Securities
Exchange Act of 1934) occurred during the fourth quarter of our fiscal year
ended December 31, 2003 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




                                       48
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Effective January 21, 2004, the Registrant dismissed Ernst & Young, LLP as
independent auditor. Ernst & Young LLP's report on the Registrant's financial
statements for the fiscal year ended December 31, 2002 did not contain an
adverse opinion or a disclaimer of opinion, but was modified due to uncertainty
about the Registrant's ability to continue as a going concern.

During the Registrant's 2002 year and through January 21, 2004, there were: (i)
no disagreements with the Ernst & Young LLP on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure which disagreements if not resolved to the Ernst & Young LLP's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on our financial statements for such year; and (ii)
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.

Effective January 21, 2004, the board of directors of the manager of the
Registrant's general partner approved the engagement of Imowitz Koenig & Co.,
LLP as the Registrant's independent auditors for the fiscal year ending December
31, 2003. The Registrant did not consult Imowitz Koenig & Co., LLP regarding any
of the matters or events set forth in Item 304(a)(2) of Regulation S-K prior to
January 21, 2004.



                                       49
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

         The Partnership has no directors or executive officers. The general
partner of the Partnership is AP-Fairfield GP LLC, a Delaware limited liability
company. The general partner manages and controls substantially all of the
Partnership's affairs and has general responsibility and ultimate authority in
all matters affecting its business. As of March 1, 2004, the names of the
executive officers of manager of the general partner and the position held by
each of them are as follows:

<TABLE>
<CAPTION>
                                     Position Held with the         Has Served as a Director
Name                                    General Partner                 or Officer Since
----                                    ---------------                 ----------------
<S>                      <C>                                                  <C>
Michael L. Ashner        Chief Executive Officer and Director                 8-01

Thomas C. Staples        Chief Financial Officer                              8-01

Peter Braverman          Executive Vice President                             8-01

Carolyn Tiffany          Chief Operating Officer                              8-01
</TABLE>

         Mr. Ashner, age 51, has been the Chief Executive Officer of Winthrop
Financial Associates, A Limited Partnership and its affiliates ("WFA"), since
January 1996. Mr. Ashner is also the Chief Executive Officer of Newkirk MLP
Corp., the manager of the general partner of The Newkirk Master Limited
Partnership ("Newkirk") as well as the Chief Executive Officer of each of
Shelbourne Properties I, Inc., Shelbourne Properties II, Inc. and Shelbourne
Properties III, Inc., three separate publicly traded real estate investment
trusts listed on the American Stock Exchange and that are currently liquidating,
and First Union Real Estate Equity and Mortgage Investments ("First Union"), a
real estate investment trust listed on the New York Stock Exchange. Mr. Ashner
also currently serves on the Boards of Directors of the following publicly
traded companies: Greate Bay Hotel and Casino Inc., a hotel and casino operator,
Shelbourne Properties I, Inc., Shelbourne Properties II, Inc. and NBTY Inc., a
manufacturer, marketer and retailer of nutritional supplements.

         Mr. Braverman, age 52, has been the Executive Vice President of WFA
since January 1996. Mr. Braverman is also the Executive Vice President of
Newkirk as well as each of Shelbourne I, II and III and First Union. Mr.
Braverman also currently serves on the Board of Director of each of Shelbourne
Properties I, II and III.

         Ms. Tiffany, age 37, has been the Chief Operating Officer of WFA since
December 1997. Ms. Tiffany is also the Vice President, Treasurer, Secretary and
Chief Financial Officer of Shelbourne Properties I, II and III, and the Chief
Operating Officer and Secretary of Newkirk and First Union

         Mr. Staples, age 48, has been has been with WFA since 1995 and has
served as its Chief Financial Officer since January 1999. Mr. Staples also
serves as the Chief Financial Officer of First Union and Newkirk and is the
Assistant Treasurer of Shelbourne Properties I, II and III. Mr. Staples is a
certified public accountant.

         One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of a number of limited
partnerships which either have a class of securities registered pursuant to
Section 12(g) of the Securities and Exchange Act of 1934, or are subject to the
reporting requirements of Section 15(d) of such Act.

         Except as indicated above, neither the Partnership nor the general
partner has any significant employees within the meaning of Item 401(c) of
Regulation S-K. There are no family relationships among the officers and
directors of the general partner.

         Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the


                                       50
<PAGE>

Partnership with respect to its most recent fiscal year, the Partnership is not
aware of any director, officer, beneficial owner of more than ten percent of the
units of limited partnership interest in the Registrant that failed to file on a
timely basis, as disclosed in the above Forms, reports required by section 16(a)
of the Exchange Act during the most recent fiscal year or prior fiscal years.

ITEM 11. EXECUTIVE COMPENSATION

         The Partnership is not required to and did not pay remuneration to the
officers and directors of its general partner. Certain officers and directors of
the general partner receive compensation from the general partner and/or its
affiliates (but not from the Partnership) for services performed for various
affiliated entities, which may include services performed for the Partnership;
however, the general partner believes that any compensation attributable to
services performed for the Partnership are immaterial. See also "Item 13.
Certain Relationships and Related Transactions."


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a) Security Ownership of Certain Beneficial Owners.

         Except as set forth below, no person or group is known by the
Partnership to be the beneficial owner of more than 5% of the outstanding Units
at March 1, 2004:

           Name of Beneficial Owner    Number of Units owned       % of Class
           ------------------------    ---------------------       ----------

            AP-Fairfield LP, LLC(1)            18,554                22.26%

(1)      The principal business address of the listed entity, which is an
         affiliate of the general partner, is 7 Bulfinch Place, Suite 500,
         Boston, Massachusetts 02114.

         (b) Security Ownership of Management.

         At March 1, 2004, AP-Fairfield LP, LLC, an affiliate of the general
partner, owned 18,554 Units representing approximately 22.26% of the total
number of Units outstanding. Neither the general partner, nor any officer,
director, manager or member thereof, or any of their affiliates owned any Units.

         (c) Changes in Control.

         There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership pays Winthrop Financial Associates, an affiliate of the
general partner, a monthly fee of $30,000 to cover various administrative
services provided on the Partnership's behalf. For the year ended December 31,
2003, $360,000 was paid for these services.

                                       51
<PAGE>



ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Managing General Partner has reappointed Imowitz, Koenig & Co., LLP as
independent auditors to audit the financial statements of the Partnership for
2004.

Audit Fees. The Partnership was billed by Imowitz Koenig & Co., LLP audit fees
of approximately $67,000 for the year ended December 31, 2003. The Partnership
was billed by Ernst & Young, LLP audit fees of approximately $108,500 for the
year ended December 31, 2002.

Audit Related Fees. The Partnership was billed by Imowitz Koenig & Co., LLP
audit related fees of $0 for the year ended December 31, 2003. The Partnership
was billed by Ernst & Young, LLP audit related fees of approximately $13,577 for
the year ended December 31, 2002

Tax Fees. The Partnership was billed by Imowitz Koenig & Co., LLP tax fees of
approximately $33,000 for the year ended December 31, 2003. The Partnership was
billed by Ernst & Young, LLP tax fees of approximately $28,500 for the year
ended December 31, 2002.

Other Fees. The Partnership did not pay any other fees to Imowitz Koenig & Co.,
LLP for the year ended December 31, 2003 nor did it pay any other fees to Ernst
& Young, LLP for the year ended December 31, 2002.




                                       52
<PAGE>



                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)   Financial Statements: see Index to Financial Statements in Item 8.

(a)(2)   Financial Statement Schedule:

         All Schedules for which provision is made in the applicable accounting
         regulation of the Securities and Exchange Commission are not required
         under the related instructions or are inapplicable and therefore have
         been omitted.

(a)(3)   Exhibits:

         See Exhibit Index

(b)      Reports on Form 8-K:

         The Partnership filed the following reports on Form 8-K during the last
         quarter of the fiscal year:

         No Current Reports on Form 8-K were filed by the Partnership during the
         three month period ended December 31, 2003.


                                       53
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

                               By: AP-Fairfield GP LLC
                                   General Partner

                                   By: AP-Fairfield Manager Corp.
                                       Manager


         Dated: March 30, 2004         By: /s/ Michael L. Ashner
                                           ----------------------
                                           Michael L. Ashner
                                           President and Director
                                           (Principal Executive Officer)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in their capacities on the dates indicated.



         Dated: March 30, 2004         By: /s/ Michael L. Ashner
                                           ----------------------
                                           Michael L. Ashner
                                           President and Director
                                           (Principal Executive Officer)



         Dated: March 30, 2004         By: /s/ Thomas Staples
                                           -------------------
                                           Thomas Staples
                                           Chief Financial Officer and Treasurer
                                           (Principal Financial and
                                            Accounting Officer)



                                       54
<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
 No.     Exhibit                                                                                            Page
 ---     -------                                                                                            ----
<S>     <C>                                                                                                  <C>
 2.1     Amended and Restated Agreement of Limited Partnership of Fairfield Inn by Marriott Limited          (1)
         Partnership by and among Marriott FIBM One Corporation (General Partner), Christopher, G.
         Townsend (Organizational Limited Partner), and those persons who become Limited Partners
         (Limited Partners) dated July 31, 1990.

 2.2     First Amendment to Amended and Restated Agreement of Limited Partnership dated as of December       (2)
         28, 1998.

10.1     Loan Agreement between Fairfield Inn by Marriott Limited Partnership and Nomura Asset Capital       (1)
         Corporation dated January 13, 1997.

10.2     Secured Promissory Note made by Fairfield Inn by Marriott Limited Partnership (the "Maker")         (1)
         to Nomura Asset Capital Corporation (the "Payee") dated January 13, 1997.

10.3     Form of Ground Lease                                                                                (1)

10.4     2003 Omnibus Agreement, dated December 5, 2003, among Marriott International, Inc., Big Boy         (5)
         Properties, Inc., Fairfield Inn By Marriott Limited Partnership, Lasalle Bank, N.A., Sage
         Management Resources III, LLC, and Winthrop Financial Associates, A Limited Partnership

10.5     Third Amendment to Loan Agreement, dated December 5, 2003 between Fairfield Inn by Marriott         (5)
         Limited Partnership, and Clarion Partners, LLC, as Special Servicer on behalf of LaSalle Bank
         National Association, a national banking association, as trustee, in respect of the Asset
         Securitization Corporation Commercial Mortgage Pass-Through Certificates Series 1997-MD VII
         Securitization.

12.1     Statements re: Computation of Ratio of Earnings to Fixed Charges                                    56

16.1     Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated May 20, 2002.       (4)

16.2     Letter from Ernst & Young LLP to the Securities and Exchange Commission dated January 21, 2004      (6)

  31     Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            57

  32     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                             59

99.1     Confirmation of Receipt of Assurances from Arthur Anderson LLP                                      (3)
</TABLE>

(1)  Incorporated by reference to the Registrant's Form 10 filed on January 29,
     1998.
(2)  Incorporated by reference to the Registrant's Form 10/A filed on April 11,
     2001.
(3)  Incorporated by reference to the Registrant's Annual Report on Form 10K
     filed for the year ended December 31, 2001.
(4)  Incorporated by reference to the Registrant's Current Report on Form 8K
     filed May 20, 2002.
(5)  Incorporated by reference to the Registrant's Quarterly Report on Form 10Q
     filed for the three month period ended September 30, 2003.
(6)  Incorporated by reference to the Registrant's Current Report on Form 8K
     filed January 22, 2004.


                                       55